Genie Energy's (NYSE:GNE) 1Q22 revenue of $98.5mn was down 8.3% YoY, with revenues at the Genie Retail US [GRE] segment down 7.5% YoY and Genie Retail International [GREI] down 11.9% YoY. Gross margin however jumped very sharply to 46.2% from 11.8% in 1Q21 driven by a 3900bps margin improvement at GRE. Overall gross profit was up 259.9% YoY. As a result, adjusted EBITDA came in at $25.7mn from a loss of $4.4mn in 1Q21.
GRE continued to have a great quarter of record adjusted EBITDA and gross margin. This was driven by the company allowing low margin customers to attrite ahead of the winter and optimize its forward book. Losses on the gross margin level for GREI reduced and the company had 'moderated' its focus on customer acquisition to generate margin expansion. GREI also saw mark-to-market losses in 1Q22, without which the segment would have reported operational profits.
Genie's CEO Michael Stein's comments sum up the company's performance well - "Genie had an amazing start to the year with record quarterly results across numerous key profitability metrics. Overall, the first quarter's results underscored the flexibility of our business model, and our ability to leverage our market expertise and execution capabilities to generate strong performance, including robust cash flows, and significant value for Genie Energy shareholders."
Looking ahead to 2Q22 the company expects to deliver strong financial performance in its retail businesses even though this is typically a period of lower consumption. The company will also focus on customer portfolio management and preserving margins until the volatility in commodity pricing eases out. The company has also declared a dividend per share of $0.075. Genie Energy's net cash position of $3.65 per share [including marketable securities] is 56% of the current market cap.
Genie Energy's domestic business - GRE - has had a stellar quarter and we believe this will continue to be a growth driver for the stock looking ahead. The international business too has pared its loss at a gross margin level which we think can be an added kicker to financial performance. With attractive valuations, ability to generate free cash flow, recently resumed dividends and substantial net cash, we believe Genie Energy's stock price can easily recover closer to its 5-year highs of over $11.00.
As we have noted earlier, Genie Energy's financials are marked by volatility in EPS, mark-to-market transactions and changes in commodity pricing. This makes it difficult to accurately model the company's financials. In our estimate however, Genie Energy should report an EPS of $0.99 for FY2022. The stock is currently trading at 6.5x P/E and 12.9% FCF yield. The company also has an implied dividend yield of 4.6%. This in our opinion is very attractive given the company's growth potential and net cash position.
We value the stock using a 10x P/E multiple on our 2022 estimates. This brings us to a target price of $9.90/share, a 53% upside potential from the current stock price. Given the current low interest rates, Genie Energy's EPS doesn't factor in significant interest income from its net cash position. Looking ahead however, as interest rates increase, the potential to earn higher income from the company's cash position could add to the stock's upside.
Genie Energy has seen record earnings with revenues and EPS at its highest levels in the last 5 years. In the last 3 year specifically, Genie Energy has demonstrated revenue growth, gross margin expansion and significant net income growth. In addition to this, Genie Energy's free cash flow performance has also been strong and consistent. Historical free cash flow yield was 46% in 2021, 12% in 2020 and 7% in 2019. Free cash flow to EV too is very attractive for the company, clocking 115% for 2021. The chart below demonstrates Genie Energy's solid financial performance.
In the last couple of quarters, Genie Energy has demonstrated good operational performance in a volatile environment and has managed to substantially improve its margins. This coupled with the resumption of dividends, which implies a robust yield of 4.6% in FY2022, makes Genie's stock an attractive opportunity for investors. Its 56% net cash and 13% FCF yield estimated for FY2022 gives comfort on the company's ability to continue paying dividend and balance sheet. We have a target price of $9.90 for Genie Energy which gets us to an upside potential of 53%.
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