ERG 0.00% 2.6¢ eneco refresh ltd

Huntley on ERG

  1. 400 Posts.
    From todays Huntleys

    ERG (ERG) $0.35
    ERG issued a major announcement this morning relating to its Onelink consortium in Melbourne.

    The announcement states that ERG has secured a settlement from the Victorian Government which gives immediate cash payments of $45m flowing directly to ERG over the next three months, together with up to $20m over the next five years if ERG and OneLink can manage the vandalism problem. It is not immediately clear what P&L effect this settlement will have. ERG accounted for some expected settlement in its Receivables at the last balance date.

    This is a substantial amount of real money coming into the company, and is a reasonable amount even in the context of the losses that ERG recently reported, which included a number of large non-cash writedowns.

    Fundamentally, we believe the story is good, though the stock will take many years to shake off the trauma of the past two. The risks must still not be underestimated. We only have to look at the $207m "Bank guarantees and performance bonds held by contracting parties in the normal course of business" at 31/12/01. And then there's the thorny issue of the $250m convertible note due in Oct 2005.

    Confidence is the key. And delivery of key business imperatives like this one are the only thing that will deliver a recovery in confidence. There is still some (smaller now, though) risk of a vicious downward spiral whereby a lower share price leads to a reluctance to do further business, and possibly triggers debt and customer contract defaults, which damage the business to the point where it is no longer viable.

    The risks may now have changed to the upside, and we would recommend purchases at around these levels (33c-34c) FOR SPECULATORS ONLY. Conservative investors should wait for positive developments from the Proton business, among other things.

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