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SMS looks to energy management

Pointing to a 2020 recovery in smart meter installations, the group sees long-term potential in managing ‘carbon reduction’ assets
March 17, 2020

The bulk of Smart Metering Systems’ (SMS) turnover comes from managing electricity meters on behalf of energy suppliers in exchange for a service charge. Index-linked annualised recurring revenue (ILARR) – revenue generated from meter rental and data contracts – rose by a fifth to £90.1m in 2019. With a contracted pipeline to install a further 2m smart meters, the group says this should add £40m to ILARR.

IC TIP: Buy at 613p

Smart meter installation slowed last year as technical difficulties delayed switching from ‘SMETS1’ meters to the newer ‘SMETS2’ model. Investment in SMETS2 meters almost doubled inventories and overcapacity of engineers swung the asset installation division from a £6.1m gross profit to £5.6m loss. Having installed 300,000 smart meters in 2019, the group anticipates 350,000-400,000 installations per year moving forward.

SMS ended the year with £219m of net debt (excluding £4m in lease liabilities). But having conditionally sold 187,000 of its industrial and commercial meter assets to Equitix Investment Management for £291m, it will move into a net cash position. The strengthened balance sheet will underpin a new dividend policy – a 25p full-year payout in 2020, growing at least in line with retail price inflation to 2024.

Liberum forecasts adjusted pre-tax profit of £11.9m and EPS of 8.1p in 2020, rising to £15.2m and 10.2p in 2021.

SMART METERING SYSTEMS (SMS)  
ORD PRICE:613pMARKET VALUE:£687m
TOUCH:612-613p12-MONTH HIGH:742pLOW: 308p
DIVIDEND YIELD:1.1%PE RATIO:172
NET ASSET VALUE:200pNET DEBT:99%*
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201553.917.517.53.30
201667.218.217.34.10
201779.618.016.25.20
201898.55.403.975.98
20191145.463.566.88
% change+16+1-10+15
Ex-div:23 Apr   
Payment:4 Jun   
*Includes lease liabilities of £4m