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Profit from rapid, regulation-driven growth with Energy Assets

Energy Assets is growing rapidly as regulation boosts demand for its services, but the shares don't reflect its excellent inflation-linked utility-like revenue stream and secure financing.
Profit from rapid, regulation-driven growth with Energy Assets

The refinancing of Energy Assets' debt earlier this year should underpin the company's ability to exploit regulatory-driven demand for smart meters. But the shares' single-digit forecast PE hardly seems a fair reflection of the 140 per cent earnings growth expected over the next two years based on the increasingly credible strategy of generating recurring index-linked revenues from a ballooning asset base.

IC TIP: Buy at 230p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points
  • Strong growth
  • 68 per cent recurring revenue
  • Re-financing
  • Regulatory growth driver
Bear points
  • High debt levels
  • Early stage company

Energy Assets (EAS) could turn into a cash machine in years to come. It installs smart gas meters for industrial customers on behalf of utility companies. The average meter costs £850 and generates £135 a year in rental fees. Four fifths of the upfront capital cost of a meter is usually financed with debt, which is paid back over the first half of the the meter's typical economic life of 20 years, and often well beyond. The meter-rental contracts with blue chip names like British Gas, Corona Energy, and Gazprom Energy, meanwhile, are guaranteed to rise with retail price inflation (RPI) for up to 15 years.

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