Fulcrum opening up new pipelines

Historically, Fulcrum has focused on sectors of the UK gas market. At the end of March, it owned an £11.9m portfolio of assets from across the domestic, industrial and commercial spheres, which provides an annualised income of £1.6m in gas transportation charges. It has also agreed to buy a further £2.8m of gas assets.

On top of this, the group has been expanding into new areas. In October, it began adopting, owning and operating low pressure gas meters, which was followed in November by medium pressure industrial and commercial meters. It is now seeking an independent distribution network operator licence, which would allow it to own electrical assets. Analysts at broker Finncap estimate the gas connections market – the group's core business – is worth £300m per year, while the electrical market is worth £500m.

The licence has yet to be granted, but should come through in December for the first assets to be adopted in early 2018. Management says the process is "on track" and it is targeting the same “low double-digit” returns as the group has been generating from its gas assets. The move will be funded from the £12.6m cash pile to begin with, but management is willing to take on debt or raise equity to fuel further growth in the sector.

Growing the order book has been a priority in recent years and in the latest financial year the book grew 39 per cent to £30.3m. Opening up new markets is likely to have a positive effect on orders for obvious reasons. However, chief executive Martin Harrison said success in the electrical market would likely lead to an increase in gas customers too, as those looking for gas and electrical infrastructure often favour suppliers who can provide both.

The group is already benefitting from improved diversification. A broadening sales mix and increased level of transportation income are combining with improved efficiency and widening profit margin. In 2016-17, the gross margin expanded to 41 per cent from 36 per cent the year before.