Intelligent Energy (IEH) made major steps forward in all three divisions during FY15, although the share price has been adversely affected by financing concerns, which management is actively addressing. The DP&G division negotiated a deal with GTL that transforms the group’s revenue profile and establishes a platform for volume deployment of fuel cells. The Motive division has broadened its customer base so it now works with one in four major automotive OEMs. The Consumer Electronics (CE) division launched its first product, acquired key assets for accelerating the development of fully embedded fuel cells and secured joint development work with an emerging smartphone OEM. We trim our estimates to reflect a modified CE business model and now see fair value at £426m ($643m).
We revised our estimates following the October trading update. Actual performance was broadly in line with our estimates. The strong y-o-y revenue growth was attributable to the increase in telecoms towers under management in the DP&G division. The majority of revenues were derived from managing towers under an interim contract, which generated minimal margins. We expect divisional and group margins to improve in FY16 post-transition to the long-term contract.
The margin enhancement and revenue growth assumed in our estimates require IEH to complete the GTL transaction and then double the portfolio of towers under management by end FY16. According to our estimates, this results in a $98m funding gap. In the short term, management need to arrange a convertible loan note with industrial partners, dispose of a minority (<24.9%) stake in the Indian DP&G operation and secure £60m ($91m) Indian bank debt as part-payment of the GTL deal. Successful completion would remove the potential for a discounted funding round and associated dilution, a prospect that continues to weigh down the share price
Our SOTP analysis gives a risk-adjusted base case indicative value of £426m ($643m), reduced from £471m ($717m) previously because of a decline in peer share price multiples and a reduction in FY17 revenue forecast for the CE division. This analysis excludes any value associated with long-term royalties for the Motive division or licence fees and royalties for the CE division.