MCC Energy: Advisors to a Hot Sector

MCC Energy - One for the green portfolio?



Background: MCC Energy is an established company providing advisory services to the energy sector. On listing the company hopes to expand and acquire early stage energy assets. The company has raised £3 million before expenses at 50p, bringing the market cap up to £13 million. Directors will hold over 50% of the equity. Prestbury Investment Holdings* and Cornell Capital Partners will hold 12.5% of the company.

Operations: Three people in Los Angeles were involved in setting up what grew to become one of the larger energy providers to commercial and industrial companies in the US, supplying de-regulated electricity. New Energy Ventures was formed in 1998/1999 by Tony Moore, Sharon Clayton and Steve Levine and was subsequently sold to AES Corporation for around $90 million. The threesome then went away to form an advisory services group called Moore, Clayton and Co Inc with the hope of building on strong relationships established at New Energy.

MCC Energy (also set up by the Moore Clayton group) hired MCC Inc to provide advisory services to the group. MCC Energy has been operating for a few years now and has mainly been involved in offering advice to companies in the main stream and alternative energy sector. It offers strategic solutions on finances, business development, mergers, acquisition and capital raising principally to companies based in Europe and North America. Historically, an example of MCC Energy work would involve launching a $45 million fundraising for 'Delphi Automotive Systems'.

On listing, the company intends to launch two new divisions apart from Energy Advisors - Energy Technologies and Energy Assets. Both are newly incorporated subsidiaries and while one will focus on developing early stage energy projects in return for a significant stake of equity, the other will concentrate on acquiring small to medium scale assets, particularly in the renewable sector. The company already operates a policy of trading services for equity and as a result, has large stakes (ranging from 3 - 50% ) in these early stage companies. Most of these projects pay MCC a small retainer fee, an portion of funds raised if working capital is required and in addition, a stake in the company.

The results for the year to December 2003 showed a loss of $17,396 on a turnover of $660,788. In the nine months to September 2004, the company recorded a loss of $2.4 million on a turnover of $529, 350. The losses include a non cash stock transfer for services rendered - 1.96 million shares at $1 each to contract personnel, advisors and directors. In the last three months to 31 December 2004, the company has signed off on a number of contracts and expects revenues in the year to December 2005 to come in around $3 million. In three months, the company has signed off on a $800,000 deal with Rainy Energy, $402,000 deal with Theolia SA and sold $956,000 worth of shares in a private company.

Business Development: The company has consciously structured its business model to 'spread risk and provide long term return on investment to shareholders'. It hopes to bring in a range of deals which should provide working capital for the short term and equity stakes which should deliver in the long run. The Energy Technologies division will acquire controlling and non controlling stakes in technology companies in Europe and North America. Consolidation opportunities within the portfolio will be reviewed over a period of time. Energy Assets, focussing on acquisitions, has already short -listed a few companies and is currently looking into due diligence processes. The aim is to acquire assets that will generate predictable and consistent revenues. MCC business model is subject to environment friendly laws which are expected to be enforced by the government.

Management: Tony Moore, Executive Vice Chairman has been with the company for a few years and was President of New Energy Inc, he has held senior executive positions at Goldman Sachs in New York and London. Steven Levine, CEO of MCC , has served as Vice President of New Energy Inc, and Sharon Clayton, non-exec director, is also a founder of MCCI and has worked as international business development president for Dimax Controls and director of Business Development of Johnson Controls.

Investment Conclusion: The team has been involved in the setting up of a fairly large energy retailer in America and has continued working in the industry to provide financial advisory services to groups across the world. The management seems credible with enough experience in the energy sector to continue bringing in contracts. Members on the board, including the non-exec Chairman, have been responsible for setting up the AIM listed Healthcare Enterprise Group.

The numbers look encouraging and if the $1.9 million stock transfer is ignored, the company would have recorded losses of $500,000 in the nine months to September 2004. The numbers to December 2005 signify turnover of $3 million and on a no tax charge, assuming overheads increase to $1.3 million, pre-tax profits could come in at $1.7 million or £900,000. Even on a mid teen forward PE, the company looks like a possible addition to the green portfolio.

Contact details: KBC Peel Hunt - 020 7418 8911

* Prestbury Investment Holdings currently holds 20% of t1ps.com, parent company of allnewissues.com

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