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Premier Holding Corporation: THE INVESTMENT CASE

Premier Holding powering up

The model for energy services supplier Premier Holding is coming together with the addition of a power supplier to its list of subsididiaries
Solar and conventional energy
INVESTMENT OVERVIEW: PRHL The Big Picture
Powerbunga! Premier's companies provide multiple energy service solutions

In a nutshell, Premier Holding Corporation (OTCMKTS:PRHL) is an energy services company that lowers energy usage costs for its clients.

It operates as a deregulated power reseller and as an energy service company.

The easiest to understand service the company provides is advice on how to lower the price paid for energy used.

The group can also help develop a corporate sustainability and efficiency strategy, advising on energy, water and waste reduction projects.

Typical products and services offered by energy efficiency companies include lighting and lighting retrofits; heating, ventilation and air conditioning upgrades; motor controls; equipment installations; and load management.

Its services can encompass power generation including on-site co-generation, renewable energy plants, and so on.

It has two main subsidiaries: E3 and The Power Company (TPC).

E3 – the Energy Efficiency Experts

The California-based business prescribes the best energy solution for the unique circumstance of each client by providing state-of-the-art, fully-vetted solutions in energy reduction technologies, as well as management tools that set up the client for upselling opportunities.

It lowers the cost of energy through competitive supplier bidding and creates comprehensive energy savings solutions through the implementation of energy reduction projects.

“E3’s energy management programs are designed to provide a high value return to their clients, targeting savings of at least 25-50% of their total energy costs, in many cases with little to no out-of-pocket costs,” SeeThru Equity said in its initiation note on Premier.

It’s a business with very long sales cycles, so it is – no pun intended – a slow burn, but potentially very lucrative given the customers E3 is targeting: local authorities, ports, big box stores, Fortune 500 companies and the like.

The focus is on building sales channel partners.

“We have established strategic partners in key growth markets that advocate and introduce our lighting and related demand management technologies to the TPC customer base,” the company said.

TPC - The Power Company

In the first quarter of 2013, Premier acquired an 80% stake in TPC, a deregulated power broker in Illinois; that’s power as in “gas and electricity” rather than power as in influence.

TPC’s client contracts number in the tens of thousands.

TPC operates in deregulated markets where it can find a deal that provides a client with the same level of service it is currently enjoying, at a lower price.

In many cases TPC saves its clients 10% to 30% on their energy bills by simply switching suppliers.

TPC says it is different to several of its competitors in that is has agreements with multiple energy suppliers, allowing it to have its suppliers compete for their clients’ business.

Currently, TPC has access to more than 30 different suppliers and has most of the agreements in place that allow for TPC to be paid for the life of the client’s tenure with the supplier.

TPC acquires its clients through strategic partnerships, trained in-house commercial and door-to-door residential agents and call centers.

In the second half of 2016, Premier added a third leg to the business: American Illuminating Company.

Randall Letcavage, Premier's chairman and chief executive said: "As we launch AIC as our power supplier it will serve as the 'anchor' for PRHL's business plan to increase revenue and generate profits from all of its various subsidiaries by offering and integrating its entire suite of products and services to its ever expanding database of satisfied customers.”

The market opportunity

The deregulation of the power industry is, according to some pundits, going to be a bigger deal than the loosening up of the telecoms industry.

Research house SeeThru Equity, which initiated coverage on the stock in April 2015, reports that the industry is valued at more than US$500bn, and is some five to seven times larger than the “lucrative telecom market” launched in the early eighties.

According to the US Energy Information Administration (EIA), the US retail price of electricity to the residential sector averaged 12.7 cents per kilowatt-hour (kWh) in 2015.

EIA projected the residential price would fall slightly (0.7%) in 2016, which would mark the first decline in annual average US residential prices since 2002.

In 2017, the U.S. residential electricity price is forecast to average 12.9 cents/kWh, 2.3% higher than in 2016.

These fluctuations can partly be attributed to deregulation, and Premier believe it indicates the growing popularity of this industry.

“For instance, the price TPC offers power to its residential customers is roughly half of what is listed as the national average. The number of states adopting some form of deregulation continues to increase, and TPC has only addressed a small number of these states in earnest,” the company said in its full-year results statement.

What the market thinks

Research house SeeThru Equity’s most recent note on the company, from June 2016, has a target price of US$0.69 for the stock.

The stock currently trades at less than a tenth of that at US$0.062.

SeeThru likes the look of the AIC acquisition, which “appears to be a good fit for the company, as it would position PRHL as having the capability to become a vertically integrated player, allowing for potential integration synergies with its power broker subsidiary, TPC”.

In 2015, Premier had revenues of US$5.2mln; SeeThru expects this to have risen to US$8.7mln in 2016.

Underlying losses (LBITDA) are tipped to widen to US$3.4mln from US$2.5mln in 2015, as the company continues to invest in expansion.

Premier’s management is projecting revenue will grow rapidly in 2017 to around US$40mln, and rise to US$95mln in 2018, as it shifts sales over to its in-house supplier.

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