Western Power awards large contracts to Empired

Shares in Empired Limited (ASX: EPD) surged from the previous day’s close of 27 cents to a high of 43.5 cents on Tuesday after the company secured two contracts with Western Power to provide a diverse range of digital services for up to seven years.

Western Power operates the majority of power distribution in Western Australia.

Collectively the two contracts have an estimated value of $61 million over the initial five-year term.

An infrastructure managed services contract with an estimated value of $31 million over five years will see Empired provide end-user computing services to more than 3,300 Western Power staff and contractors.

This will provide 24/7 service management leveraging Empired’s state-of-the-art service desk and national operations centres, managing all data centres and cloud operations, as well as coordinating more than 2,000 network devices across 30 sites.

Transition of these services will commence immediately and is expected to be completed by early August 2020.

Not only is this contract a substantial boost to Empired’s revenues, but it is also an endorsement of the company’s ability to manage large projects on behalf of a major infrastructure group.

Awarded preferred Master IT Supply contract valued at $30 million

In addition, Empired Limited has been awarded a preferred Master IT Supply Contract with an estimated value of $30 million over five years for the provision of a technology enhancement program in support of the managed services scope.

Empired has partnered with global giant HCL Limited to provide leveraged offshore resourcing and access to world-leading intellectual property in the energy and power distribution markets.

The energy market is a rapidly changing and increasingly competitive industry, suggesting that there may be further work of this nature in the pipeline for Empired.

Underlining the importance of this contract win, Empired managing director Russell Baskerville said, "This contract win is testament to Empired’s extensive capability and its ability to compete and win against the largest Australian and international competitors.”

Empired’s shares retraced throughout the afternoon to trade in the vicinity of 33 cents as the broader market declined, perhaps providing a buying opportunity.

It is worth noting that the 12 month consensus price target prior to the award of these contracts was 37.5 cents.

One would expect both earnings upgrades and an upwardly revised share price target following this news.

As a guide, analysts were forecasting Empired to generate earnings per share of 4.4 cents in fiscal 2020, indicating that the company is currently trading on a PE multiple of approximately 7.5, a conservative implied value for a company that is forecast to generate earnings per share growth of 25% in fiscal 2021.

Empired also offers sound earnings predictability due to the recurring revenue generated by certain parts of its business.