- Increasing complexity of corporate energy requirements, and regulatory and sustainability imperatives could help Inspired to grow organically
- It is also in a position to make acquisitions
- The company's revenues and share price could rebound in a more normal environment
Ken Wotton, manager of funds including LF Gresham House UK Micro Cap (GB00BV9FYS80) and Strategic Equity Capital (SEC), explains why he invests in energy services and procurement specialist Inspired (INSE).
“Inspired is the leading player in the growing but fragmented corporate energy services market, and has significant opportunity to gain market share through client wins, proposition extension, and mergers and acquisitions (M&A).
“The company [helps] clients, generally large corporates, to procure energy cost-effectively, audit and report their usage of it, and optimise energy efficiency. The increasing complexity of corporate energy requirements and increasing regulatory and sustainability imperatives will support continued strong organic growth for the company with a likely flight to quality leading to further increases in its market share. Inspired’s business model is strong with high quality of earnings from long-term contracts, high margins and return on capital, and good cash conversion.
“Strategic Equity Capital’s initial investment in Inspired was made last year as part of a placing to strengthen the company’s balance sheet and provide [it with the] firepower to undertake a number of bolt-on acquisitions to consolidate its position in the market. We believe that these deals will be attractive financially and strategically.
“But [some of our other funds first] invested in Inspired when it listed in 2011, initially taking a 9.4 per cent stake. [And we had] worked with its management team on areas such as board composition and management incentives prior to the initial public offering. Since 2011, we have regularly engaged with the management team on various projects, most notably business strategy, raising capital for expansion and board composition and planning.
“Although Inspired’s revenues are depressed due to lower corporate energy usage in 2020, there is significant opportunity for a rebound in its revenues and share price when there is a return to a more normalised environment. The company remains well-capitalised and positioned to drive growth and execute further M&As once market conditions normalise.
“Inspired also has strong environmental, social and governance (ESG) credentials. It has a strong focus on sustainability, and [offers] services that help clients measure, report and improve their ESG performance.”
As of 31 March, Gresham House funds in aggregate held 19.8 per cent of Inspired’s shares.
Inspired has recently changed its name from Inspired Energy to reflect the structure into which it has evolved. This comprises three divisions.
Inspired Energy delivers energy, water, and sustainability assurance and optimisation services, so businesses can manage their costs better, reduce their carbon efficiently and meet net-zero targets. Inspired ESG specialises in solutions that enable investors and businesses to make effective ESG disclosures. And Inspired Software delivers technology and software that underpin services provided by Inspired.