Fulcrum's tipping point

Sheffield-headquartered Fulcrum describes itself as the UK's leading independent energy and multi-utility service provider. To the layman, this means installing, repairing and upgrading gas, electricity and water connections - increasingly at the same time - for industrials, housebuilders and construction firms. This work ranges from basic gas pipe maintenance at small housing developments to highly complex, multi-year infrastructure projects.

One high profile example of the latter was a mandate to build the gas infrastructure for the Olympic Park in London, including the flower-like Olympic Cauldron torch sculpture featured in the opening ceremony. More recently, the company this summer won a £4m contract to install a 13-kilometre pipeline between Scotland's gas network and four distilleries owned by Chivas Brothers, Diageo and Ian MacLeod.

Further contract success arrived last week, when Fulcrum extended a deal to provide British Gas' customers with new utility connection and metering services to 2018. This guarantees a significant boost to the existing £19m order book, to add to the attractions of recurring revenues of 53 per cent last year, and a forecast increase in national infrastructure spending.

Fulcrum can now make money from this market thanks to its decision to directly manage projects, having previously outsourced many of its operations. In doing so, management has reduced costs from £17m to £11m over two years, while further boosting margins through selective tendering. This landed Fulcrum with a £2.2m exceptional cost in 2014 tailing-off to £900,000 last year following the switch to a single-brand operating model.

During the period, the company also invested heavily in its own asset base of pipes and service points, which it charges customers to use. These assets typically last for 40 years, are cheap to service, and with an average gross yield of 12 per cent provide Fulcrum with an excellent and reliable source of cash. Annualised transportation income is now £900,000 and should grow further.

This has been good news for Fulcrum's investors and we can see the share-price momentum established over the last year continuing. While Fulcrum's cash pile does need to be seen in the context of £20m of accrued and defered income (bills-not-yet paid and payments received for not-yet-done work), it is still noteworthy that the shares trade at a cash-adjusted 10 times forecast current-year earnings dropping to just seven times in 2017.