2 ASX shares to benefit from anticipated power shortages
A picture of a lightbulb that is on but the glass is smashing to smithereens, representing the falling Origin share price today
Imagine life without electricity. Our modern lifestyles increasingly rely on energy, and this dependency intensified post-pandemic as digitalisation swept through every aspect of daily life.
In parallel, industries are facing mounting demands from artificial intelligence (AI) and digital infrastructure, heightening the need for reliable and abundant electricity like never before.
Tesla Inc CEO Elon Musk predicts power shortages will be the next big challenge. In a March 2024 interview at the Bosch Connected World conference, he said:
A year ago, the shortage was chips, neural net chips. Then, it was very easy to predict that the next shortage will be voltage step-down transformers. Then, the next shortage will be electricity.
They won't be able to find enough electricity to run all the chips. I think next year, you'll see they just can't find enough electricity to run all the chips.
As I highlighted here, Australia is not free from this global trend.
In light of this, do you wonder if there are any ASX small-cap shares that may capitalise on the anticipated electricity shortages and capital investments? I've done the homework for you.
IPD Group Ltd (ASX: IPG)
IPD Group is a leading distributor of electrical and automation solutions in Australia, with more than 70 years in the industry. Partnering with global giants like ABB Ltd and General Electric Co., IPD Group offers a comprehensive range of services encompassing power distribution, industrial control, and renewable energy solutions.
Recently, IPD Group expanded its portfolio into solar energy by acquiring Addelec. This enhanced its capability to deliver full-scale photovoltaic (PV) system solutions.
IPD Group expects robust growth for FY24, forecasting earnings before interest, taxes, depreciation, and amortisation (EBITDA) between $39 million and $39.5 million — a 42% increase from the previous year. This growth is largely driven by strategic acquisitions like EX Engineering and CMI Operations.
Through these acquisitions, IPD Group aims to further expand its value chain. The company now provides comprehensive support for critical infrastructure development, including data centres and electric vehicle (EV) charging facilities.
The IPD Group share price has lifted by 10% over the past year, and its shares are trading at 16x FY25 EPS estimates by S&P Capital IQ.
DUG Technology Ltd (ASX: DUG)
Founded in Perth in 2003, DUG Technology specialises in advanced computing and data solutions. From two founders — Dr Matthew Lamont and Dr Troy Thompson — DUG has grown to more than 250 staff with offices in Australia, the United States, the United Kingdom, Malaysia, and most recently, Abu Dhabi.
With a focus on delivering high-performance computing (HPC) solutions to industries such as oil and gas exploration, DUG is known for its expertise in seismic processing and imaging. The company uses cutting-edge computational techniques to enhance data processing speeds and accuracy.
DUG highlights that its new technology, Multi-Parameter Full Waveform Inversion (MP-FWI) imaging technology, consumes only 10% of the time and 7% of the manpower compared to conventional imaging solutions.
The company uses a unique cooling mechanism, DUG Cool, which the company claims cuts power usage by up to 51% and significantly reduces maintenance.
In 3Q FY24, the company reported a 39% increase in revenue and a 24% growth in EBITDA. DUG's co-founder and managing director, Dr Lamont, is optimistic about the future. He said:
These are very exciting times for DUG. The order book funnel, which includes project awards and risk-weighted opportunities and leads, remains very strong.
Following a decision to establish a business development presence in Abu Dhabi, a great deal of opportunity has been unearthed. As a result, plans are underway to start a new business unit in the Middle East. This will be our fourth business unit following Australia/Asia, Americas and UK/Europe/Africa.
The DUG share price has surged 136% over the past year, placing its shares at 40x their FY25 EPS estimates.
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Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Dug Technology and Ipd Group. The Motley Fool Australia has positions in and has recommended Ipd Group. The Motley Fool Australia has recommended Dug Technology. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.