- Dividend increased by 10 per cent
- Inflation-linked contracts provide tailwind
In theory, the gas crisis will accelerate the UK’s transition away from internationally imported hydrocarbons. If true, this is good news for Smart Metering Systems (SMS) which installs smart meters on behalf of energy companies to homes and businesses.
It is also investing in battery storage units to help balance the grid and store renewable energy when the wind isn’t blowing. But smart meters remains its bread and butter. In Q2, SMS installed 40,000 per month up from 30,000 last year. The government mandate is for energy suppliers to update 85 per cent of customers to smart meters by 2025. This represents a tailwind.
The grid scale battery storage is a potential growth driver for the business. The National Grid estimates national storage will need to quadruple by 2030 to accommodate the increase in renewable energy. SMS’s first 50MW grid-scale battery storage site came online in January in Burwell. The aim is to increase total storage capacity to 760MW.
In July, the board guided profitability to be marginally ahead of expectations because of the overperformance of the Burwell site. Management now expects the yield on battery assets to be 28 per cent higher than previously thought due to increased demand as renewable investment grows.
Broker Investec thinks that demand for batteries will “only strengthen further” and expects EPS to rise to 31 per cent to 17.6p by 2024. This gives a very expensive looking 2024 PE of 51, but given the growth potential of this business it is not prohibitive.
The grid needs serious investment for the UK to reach its net-zero targets and the war in Ukraine has created further impetus for domestic energy security. SMS will be near the centre of this transition. Buy.
Last IC View: Buy, 708p, 15 Mar 2022
| SMART METERING SYSTEMS (SMS) | ||||
| ORD PRICE: | 911p | MARKET VALUE: | £ 1.2bn | |
| TOUCH: | 907-914p | 12-MONTH HIGH: | 1,036p | LOW: 670p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 161 | |
| NET ASSET VALUE: | 399p | NET CASH: | £28mn | |
| Half-year to 30 Jun | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2021 | 51.7 | 5.01 | 0.90 | 18.75 |
| 2022 | 62.7 | 6.06 | 3.37 | 20.62 |
| % change | +21 | +21 | +274 | +10 |
| Ex-div: | 06 Oct | |||
| Payment: | 28 Oct |
