Bglobal targets huge opportunity

A key plank of the UK government's policy to improve energy efficiency, and hence help reduce greenhouse-gas emissions, is the introduction of smart meters. These devices replace traditional gas and electricity meters and show how much energy is being used, prompting consumers to cut back. Smart meters will be compulsory for businesses by 2014, with a deadline for homes expected for around 2020. This has created a huge opportunity for Bglobal, the dominant independent supplier of smart meters in the UK.

Smart meters make no difference to how much energy a consumer uses, but they have proved successful in reducing consumption and, therefore, bills. For example, Bglobal has installed smart meters in all of Vodafone's UK base stations and already their electricity usage has been cut by 10 per cent, saving up to £2m a year.

By September, Bglobal was installing almost 4,000 smart meters a month in the UK and should have installed almost 100,000 by the end of March. The company breaks even if it installs 3,800 a month, according to stockbroker Charles Stanley, but progress has been patchy. Earlier this year Bglobal ran into difficulties due to a lack of finance to support its installation programme - typically a finance house will own the meters while Bglobal earns recurring income from providing data services, which now account for 17 per cent of revenues.

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The financing issue was resolved in July when Barclays provided £15m of asset finance to run alongside Bglobal's existing debt facilities. This, plus £2.3m from a share placing in November, has restored existing and potential customers' confidence in Bglobal, which is the only installer to have agreements with British Gas, Npower and Scottish & Southern, plus the Russian energy giant, Gazprom, which has just entered the UK market. Indeed, orders for 22,000 meters were placed by two energy retailers in November and the pipeline for 2010 looks strong.

Switched-on businesses and public-sector organisations have identified smart meters as a way of reducing their bills and adding to their green credentials. As a result, Bglobal works directly for some clients rather than just through energy suppliers. For example, as well as Vodafone, it has installed meters for Superdrug, JD Sports and Leeds City Council.

As government regulations of greenhouse-gas emissions get wider and tougher, the market for smart meters gets bigger. In the small-company segment that Bglobal targets, there could still be 2.2m meters to be installed. Beyond this, the UK's residential market stretches to 27m electricity meters and 20m gas meters. Bglobal already has its Smart1 meter being tested by industry bodies, which could place it at the forefront of the residential market. The company has prepared the Smart1 so it can be fitted as a "dumb" meter and easily upgraded to a smart one. Furthermore, the company's meters can be used to measure electricity being generated and fed back into the grid for microgeneration. Bglobal's smart meters can track usage of gas as well.

The company is well positioned to take advantage of a huge opportunity. It has challenges in growing its business quickly while keeping a lid on costs and controlling working capital. But its bosses have done all right so far. Two years ago, Bglobal needed working capital equal to about 80 per cent of annual turnover, now that ratio is below 10 per cent