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Inspired Energy plugs into future growth

Higher energy prices are no fun at all; except, that is, for shareholders in Inspired Energy
April 6, 2017

Higher energy prices from the UK's big utilities providers have been roundly criticised by all and sundry. And the announcements from the companies themselves read like grovelling apologies. For Inspired Energy (INSE), however, increased prices create an opportunity for growth.

IC TIP: Buy at 16p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Strong organic growth
  • Increasing order book
  • Poised to benefit from rising energy prices
  • Shares lowly rated compared with peers
Bear points
  • Falling energy usage would hit revenues
  • High-ish debt and possible share issues

Inspired Energy provides energy procurement, management and analysis for companies, helping them to save money on their power bills. It is focused on large companies and, for example, in 2016 signed up speciality chemicals supplier Victrex (VCT) and building products supplier Travis Perkins (TPK). The corporate business accounts for 76 per cent of group revenues. The remainder of revenue comes from focusing on small companies (so-called SMEs) in an operation similar to rival Utilitywise (UTW). That said, Inspired's bosses claim "no huge growth ambitions in SME".

 

 

 

 

The group has demonstrated impressive growth in recent years, reaching all-time highs for revenues, profits and order book in 2016. Management attributes this to record renewals and the successful integration of Informed Business Solutions, an energy procurement and environmental compliance consultancy, which it bought in September for £2.25m.

The company's corporate procurement order book is a reliable indicator of future performance, and has grown consistently since 2012, although revenues may be in danger if clients use less energy than Inspired expects. At its latest full-year results, released in March, the order book stood at £28m, up 14 per cent year on year. Inspired also has a good record for maintaining existing clients. Retention levels are at 85 per cent across the group and at 100 per cent for its risk management division.

Management plans for growth to be split between underlying organic and acquisitions. It has already made six acquisitions since its shares were floated on the Alternative Investment Market in 2011. It targets companies that can offer additional services or technical capabilities, increased sector diversification or access to new regions.

It funds these acquisitions through a combination of debt and new equity. Net debt was highish at £10.8m at 31 December 2016, a rise of 21 per cent on the year as Inspired paid cash for three acquisitions. During the year Inspired agreed a £1.5m revolving credit facility and a £3.5m acquisition facility, of which £1.75m remains undrawn.

Meanwhile, its shares look cheap relative to similar companies. Data provider Sharepad gives a forecast PE ratio of 12 times, well below rivals such as Good Energy Group (GOOD), Smart Metering Systems (SMS) and Yü Group (YU), whose shares are all rated in the 20s. True, Inspired's rating is higher than that of Utilitywise, whose shares trade on just 8.4 times forecast earnings. Analysts at broker Panmure Gordon say Inspired's shares justify their premium because the company has less reliance on SMEs and all of its £12m of receivables should be turned into cash within 12 months.

 

INSPIRED ENERGY (INSE)

ORD PRICE:16pMARKET VALUE:£77m
TOUCH:15.5-16p12-MONTH HIGH:19pLOW: 12p
FORWARD DIVIDEND YIELD:3.1%FORWARD PE RATIO:11
NET ASSET VALUE:3p*NET DEBT:73%

 

 

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20137.621.750.350.17
201410.82.980.590.25
201515.23.490.650.35
201621.57.601.20.45
2017†25.99.301.50.50
% change+20+22+25+11

Normal market size: 20,000

Matched bargain trading

Beta: 0.3

*Includes intangible assets of £20.4m, or 4p a share †Panmure Gordon forecasts