SMS hopes new placing funds will step-up green power plans

Smart Metering Systems (SMS), the Glasgow-based installer of smart electric meters and other carbon-reduction infrastructure, is looking to charge up its growth prospects after completing a £175m equity raising. The placing was conducted at a price of 900p a share – a 12.1 per cent discount to the closing price before its announcement.

Alongside a recently-agreed £420m debt facility, the proceeds will provide most of the funding for a five-year capital expenditure programme worth £690m. The remainder will be funded by internally-generated cash. The investment is required to fund "an order pipeline that's larger than the pipeline that we've delivered over the last 10 years", the company's chief executive Alan Foy said.

It plans to install about 2.75m new smart meters for customers and needs £510m to do this, while the remaining £180m will go towards building 470 megawatts of grid-scale battery projects, which will be used to store power from intermittent sources and be sold back to the grid. 

Reported figures are skewed because of the £195m minority asset disposal completed in April 2020. But index-linked annualised recurring revenue grew 11 per cent to £75.9m, while underlying earnings before exceptional items fell 6 per cent to £26.1m, which was slightly ahead of Liberum's forecast of £25.2m. SMS maintained its full-year earnings target of £52m, but increased its post-dilution EPS target to 12.2p.

The growth plans announced are ambitious and investment in infrastructure, particularly green infrastructure, are in vogue currently, which meant SMS’s placing was oversubscribed. But even with the equity placing, leverage is likely to climb, meaning that it needs to ensure it can efficiently begin to transform the potential of its pipeline into profit – that is far from assured. Hold.

Last IC view: Buy, 613p, 17 Mar 2020