ReNu Energy’s share price more than halved when the company announced on 2 August that it was selling its solar assets and business. The shares fell 58 percent from 6 cents to a low of 2.5 cents in four hours. They ended the day 41 percent down at 3.5 cents.
To say shareholders were underwhelmed by the news is clearly an understatement. It was ReNu’s entry into the mid-market commercial and industrial solar market that gave shareholders hope that the company had a future after its failed geothermal energy ambitions and its non-event entry into biogas. Yet the company is now proposing to achieve a future in biogas, a small and underperforming sector in Australia. Investors were not impressed at ReNu’s first focus on biogas and are clearly even less impressed with this refocus.
ReNu’s plan is to sell its solar assets and energy retailing authorization to CleanPeak Energy for $5.775 million less net debt.
ReNu said it needs capital and has looked at potential debt and equity funding options including the significantly discounted rights issue in May and speaking with a wide range of potential funders. It said it was not able to secure the necessary funding to continue the planned development within its portfolio. So it sought alternative means to reduce operating costs and capitalize the business.
If the sale proceeds, ReNu will own and operate its bioenergy projects, continue its Cooper Basin geothermal remediation program, review its strategic plan, and further reduce its overhead costs. It doesn’t sound like a great future.
The rights issue had aimed to raise up to $5.5 million but raised only $733,500 before costs. The rights issue was to fund some large solar acquisitions. The disappointment in not being able to fund a faster expansion of the business is understandable, but it does not seem sufficient to justify the change of strategy. The company has been aiming to achieve cashflow positive operations and looked to be on course to achieve this before the disappointing rights issue. What has changed? Why the rush? Why sell the parts of the business that shareholders understand and in which they can see a future?
The company’s rehabilitation provisions for the Cooper Basin are $1.67 million, which hardly seems sufficient to warrant such a dramatic change of strategy.
The low uptake to the rights issue has clearly changed the company’s tune, but the sale of the solar business and the latest plan are a long way from the company’s previous strategy.
It is not yet clear if shareholder approval will be needed for the sale of the solar assets. Either way, shareholders need to ask if the board, including chairman Steve McLean and chief executive and managing director, Craig Ricato, have the right strategy? The board has clearly worked hard but are they on the right track? Since they appointed Mr. Ricato in July 2018, ReNu’s share price has fallen 70 percent. (ASX: RNE)
