Join our community of smart investors

Flowgroup in deep water on feed-in tariff cap

Updates from the government department responsible for energy policy have caused a headache for the clean energy company
September 5, 2016

The government's announcement that it is considering capping the number of boilers receiving payments through a feed-in tariff (FIT) scheme was a real blow to Flowgroup (FLOW). It means the "boiler that pays for itself" may no longer be a viable business proposition for the energy-efficient boiler maker and, as such, the share price has halved since the end of April.

IC TIP: Hold at 12.3p

This uncertainty has overshadowed an otherwise strong first-half showing. The energy business division more than doubled its customer base and continues to retain a large proportion of those customers. This has prompted management to bring forward profitability forecasts for the energy division - accounts are now expected to be in the black by the end of next year.

And the group's product offering has been enhanced by partnerships signed with two boiler companies. By March 2017 Flowgroup will sell a range of boilers and heat pumps made by Japanese group Daikin, plus a Flow branded version of the flagship smart boiler from Dutch company Intergas.

A decrease in the expected rollout of the microCHP, coupled with the strong performance by the energy business, has seen broker Arden Partners update its full-year guidance. Adjusted pre-tax losses are now expected at £24.4m for the year to December 2016 leading to an adjusted loss per share of 7.7p (negative positions of £17.1m and 5.3p a share in 2015).

FLOWGROUP (FLOW)

ORD PRICE:12.3pMARKET VALUE:£39m
TOUCH:11.8-12.8p12-MONTH HIGH / LOW:27p10p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:6.7p*NET CASH:£9.2m

Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201520.53-6.99-2.71nil
201641.84-8.04-2.53nil
% change+104---

Ex-div: na

Payment: na

*Includes intangible assets of £19.7m, or 6p a share