Update from SMS indicating that underlying PBT is marginally ahead of Board expectations, with expected FY20E net cash £30m. Smart meter installation run-rates are over 80% of pre-Covid-19 lockdown levels. Good progress has also been made with its CaRe asset strategy, with grid-scale battery storage projects now under construction. We continue to believe SMS remains substantially undervalued given: i) Base case DCF valuation of 1,222p; ii) Base case DDM valuation of 1,334p; iii) strong visible growth to 2025 with minimum secured 2m meter order book; significantly larger potential in CaRe assets; iv) attractive dividend income with committed 10% pa growth to 2024; and v) strong ESG credentials with long term sustainable and carbon reducing assets and internal 2030 net zero target.
Companies: Smart Metering Systems PLC
SMS reported solid interim results demonstrating the resilience of the business during a very uncertain period. 1H/20 revenue was flat at £54.2m with underlying PBT up 96.9% to £9.1m. We believe SMS remains substantially undervalued given: i) Base case DCF valuation of 1,058p; ii) Base case DDM valuation of 1,176p; iii) visible growth to mid-2025 with secured 2m meter order book and substantial CaRe asset potential; iv) attractive dividend with committed 10% p.a. growth to 2024; iv) balance sheet headroom with £44.5m net cash and £300m RCF; v) strong ESG credentials with long term sustainable and carbon reducing assets. Our base DCF and DDM valuations of 1,058p and 1,176p respectively are supported by the 16.4x net ILARR asset sale during 1H/20.
In a trading update, SMS confirmed that revenue and underlying profitability to 30 June 2020 are in line with earlier expectations demonstrating the resilience of meter related ILARR and business model. FY20 underlying profitability remains in line with prior expectations. H1/20 net cash was £45m. Meter installations recommenced on 1 June 2020 and are expected to return to normal run rates by the beginning of 2021. We believe SMS presents a compelling investment proposition with a strong balance sheet, underlying profitability in line with expectations prior to Covid-19 uncertainty and a rebased, index linked dividend yield of 4.2%. In our 21 July 2020 report (download) we highlighted our base DDM valuation of 1164p (potential upside of 87%), supported by the 16.4x net ILARR asset sale completed in April 2020 and favourable positioning versus other listed infrastructure development companies where SMS provides comparable and visible growth but with a yield premium.
SMS presents a compelling investment proposition with a strong financial position, underlying profitability in line with expectations prior to Covid-19 uncertainty and a rebased, index linked dividend yield of 4.2%. Long-term revenues are not demand reliant, therefore uncorrelated to GDP volatility and benefit from automatic, upwards only RPI indexation. We believe SMS remains substantially undervalued given: i) Base case DDM valuation of 1164p; ii) high level of growth with secured meter order book and CaRe asset potential; iii) attractive, index linked dividend with strong cash cover; iv) strong balance sheet headroom with £48m net cash and currently undrawn £300m RCF; v) strong ESG credentials with long term sustainable and carbon reducing assets. Our base DDM valuation of 1164p (potential upside of 89%) is supported by the recent 16.4x net ILARR asset sale and favourable positioning versus peer group listed infrastructure development companies, where SMS provides comparable and visible growth but with a substantial yield premium.
Smart Metering Systems (SMS) has announced that it has emerged from the recent Covid-19 uncertainty in a strong financial position and taken the decision to return funds received from the Government under the Coronavirus Jobs Retention Scheme. Current net cash of £48m (not including furlough grant) is ahead of previous expectations and underlying profitability for the year to 31 December 2020 is expected to be in line with expectations prior to lockdown, despite the obvious interruptions to meter installation activity that it has caused. During lockdown essential emergency field engineering work continued and SMS completed the sale of a proportion of its meter asset portfolio for a gross cash consideration of £291m (£282m net). In March 2020, SMS announced that it would rebase its dividend to 25p (prospective yield 4.3%), index linked to FY24 and commencing payments in October 2020, quarterly thereafter. A phased resumption to meter installation activity commenced on 1 June 2020.
Smart Metering Systems (SMS) has completed the sale of a minority of I&C meter assets to Equitix for a cash consideration of £291m (16.5x EBITDA). With engineering flexibility and robust index linked recurring revenue from meter rental and data services being completely uninterrupted by the current lockdown environment (£75.8m as at 1 April 2020) SMS has stated that underlying profitability is currently expected to be in line with the Board's earlier expectations. Essential emergency field engineering work is continuing and the full 2m smart meter order book remains to be completed as well as developing new opportunities with the Columbia Threadneedle ESIF partnership (CaRe assets). SMS is in a particularly strong position to see through the current period of uncertainty. Given the attractive rebased, index linked (committed until 2024) 25p dividend (prospective FY20 yield 4.3%) and longer-term growth prospects for SMS unaffected, we remain Buyers.
SMS has the morning issued an update to the market in relation to Covid-19. SMS has, with immediate effect, temporarily halted all non-essential field engineering activity, including the installation of smart meters. Essential emergency field engineering work will continue and SMS has increased safety procedures in place to ensure the protection of employees, supply chain and consumers. Whilst this short-term halt in installation activity will have some impact on profitability in the current year, SMS benefits from sustainable and predictable (upwards only) index-linked annually recurring meter rental and data service revenue (£73.2m at end February 2020) which is totally unaffected by the current environment. Whilst the short-term impact on profitability is difficult to quantify precisely and will depend on the length of time installation activity is halted, the full 2m smart meter order book will remain to be completed in its entirety once installation activity recommences. The longer-term prospects for SMS are thus unaffected in our view and the business comfortably has the balance sheet resources and expertise to see it through this difficult period.
SMS could scarcely have better timed the sale of a minority portfolio of I&C meter assets for £291m in cash, as reported on 12th March, enabling SMS to completely deleverage its balance sheet during this highly uncertain period. SMS has rebased its dividend to an (RPI upwards only linked) prospective 25p, up 263.4% on FY19 and providing a safe and index linked yield of 4.4%. In a period during which dividend income has become highly uncertain, SMS benefits from high quality, sustainable and predictable (upwards only) index-linked meter rental revenue operating cashflow which comfortably underpins this dividend commitment. SMS offers significant further growth potential from its current order book and potential increase in market share as well now accelerating opportunities from a pipeline of carbon reducing (CeRe) assets with a new funding partnership with Columbia Threadneedle Sustainable Infrastructure fund (ESIF). Our conservative DCF valuation of 922p implies potential upside of c62%.
Smart Metering Systems (SMS) has concluded the sale of a proportion of its I&C meter asset portfolio to Summer Bidco Limited for a total cash consideration of £291m, demonstrably highlighting the value of the meter asset class. The net gain on sale is c£202m pre transaction related costs (£192m post), c36.6% of the current market cap and we estimate should leave SMS with a net cash position in excess of £60m (2019 net debt confirmed at c£220m as per January 31 trading update). This has enabled SMS to completely deleverage its balance sheet and implement a significantly rebased index linked (upwards only) dividend policy during the meter rollout-phase to 2024. With its stated intention to rebase the dividend to 25p (index linked through to 2024), the prospective FY20E yield rises to c5.5%, underpinned by long term meter rental cashflows that are also index linked. Such income return visibility is especially attractive in the current climate, particularly given the upside potential from further growth in the smart meter portfolio expansion and new business opportunities in other renewable energy asset classes. Our previous base case DCF valuation of 4m meters by 2024 implied a value of 914p per share (potential upside of 100.4%) at which the rebased 25p dividend would still yield a prospective 2.7%, a substantial c80% premium to the current FY19 dividend yield of 1.5% based on the 2019 intended final dividend of 4.48p (6.88p FY19 total dividend) highlighted in today's announcement.
Smart Metering Systems (SMS) has provided a trading update stating that its FY19 financial performance is in line with market expectations. The smart meter portfolio grew 44% to 1.215m by end 2019, with the total portfolio of meter and data assets owned and under management reaching 3.7m, an increase of 18%. Annualised recurring revenue (index linked) increased 20% to £90.1m of which £38m comes from smart meters, £21.2m from the I&C meter portfolio and £18.6m from traditional domestic meter assets. With BEIS introducing an extended yet less compromising regulatory regime for smart installation activity, SMS remains well positioned to win further market share, particularly with the independent energy suppliers.
Government bans on new fossil fueled vehicles in many major economies are likely to drive significant growth in electric vehicles (“EVs”) over the next twenty years. This will create growth in electricity demand from EV charging. The volume of energy to be supplied creates opportunities for both supply companies and generators and the provision of charge points is already creating a new industry. However, the timing of this demand puts pressure on local distribution infrastructure. While smart charging and vehicle to grid technology offer solutions, we believe these will only be partial given likely charging behaviour and as a result there will be demand for additional grid capacity and for other solutions. These other solutions include charger located storage and distributed generation.
Companies: CNA NG/ YU/ DRX GOOD SMS IKA
Interim results featured growth in indexed linked annually recurring revenue (ILARR), the main driver of value, to £85.9m, up of 14.1% to £85.9m. The weak performance of the shares in recent months has presented investors with an opportunity to invest at an underpinned valuation in our view, with the core value of SMS clearly residing in the scale of its growing meter and data portfolio and our FY19E forecast £92m ILARR. The current order book of 2m smart meters supports our forecast 4m installed by 2022, from which our DCF forecast implies a valuation of 911p, c108% ahead of the current level.
This morning, SMS released a trading update for H1/19, confirming that revenue for the period is in line with the Board's expectations and ARR is up strongly to £85.9m, an increase of 14.1% since 31 December 2018. Our current forecast at FY19 is £86.6m, requiring a net increase of just £0.7m during H2/19. SMS recently secured framework agreements with BG and Opus Energy to install smart meters across their I&C customer base. Smart meters installed increased by 156,000 to over 1m and brought total number of metering and data assets under management to 3.46m.
Interswitch, a Nigeria-based payments firm, has hired advisers to resurrect plans for a stock-market listing in London and Lagos later this year, which may value the financial technology company at $1.3bn to $1.5bn.
Companies: MBT DVO SOG BMN INQO ATM GBP SMS PXS CKT
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Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Capital Limited has released its Q4 and FY2020 trading statement this morning. Overall it shows 2020 was a strong year for the company with revenue growing 18% and most other operating metrics growing positively with it – see Fig 1. We have adjusted our forecasts accordingly and also to take into account the mining services contract for the Sukari Mine which the company won late last year. The latter is a game changer for Capital and its investment case in our view; turbo charging revenue growth, enhancing margins and diversifying cashflow all of which should lead to materially higher valuation multiples. We raise our PT to 127p.
Companies: Capital Limited
2020 ended with two positive moves for carbon capture and storage (CCS) which should benefit Velocys clients. In the US, the signing of the COVID 19 stimulus bill extends and adds support for CCS in the US where the Bayou project is working with CO2 offtaker Occidental to deliver a negative emissions project. The UK government has also published guidance on CCS funding making this option an additional opportunity for the Altalto project. Velocys remains one of the very few opportunities for investors to play negative emission technology. We see both these moves improving the operating environment for the company’s clients and their projects, stimulating demand for the Velocys technology.
Companies: Velocys plc
XP reported a strong finish to 2020, with Q4 revenues up 24% y-o-y and 4% ahead of our forecast, driving FY20 profitability ahead of expectations. Order intake has normalised to pre-COVID-19 levels, reflecting continued strong demand from the semiconductor sector. We have revised our estimates to reflect strong Q420 performance and the weaker dollar, driving a 3.0% increase in FY20 EPS and a 2.3% cut to our FY21 EPS.
Companies: XP Power Ltd.
Avingtrans has announced that it has continued to perform well in H1 FY2021 and is trading in line with market expectations. Our cautiously framed forecasts anticipate adjusted EPS growth of 17% in FY2021E and 10% in FY2022E, including the benefit of cost reduction measures. The Group confirmed high levels of order cover for FY2021E at 85% at the end of September and orders taken since then will have provided further comfort. The shares have given ground YTD and now trade on a forward EV/sales multiple of 0.9x and prospective PERs of 13.8x and 12.7x for FY2021E and FY2022E respectively which are well below sector metrics. Management is also making great progress within the medical division where the potential for its small scale MRI is substantial.
Companies: Avingtrans plc
Like many awful dreams, the Covid19 nightmare hasn’t quite finished, recently mutating into an ultracontagious super-bug. The risk being global transmission and infection rates spiral out of control, swamping healthcare systems again. However this time there is an answer. Hunker down for a few months, and inoculate as many vulnerable people as possible to reduce fatalities/hospitalisations. Plus, the Oxford/AstraZeneca vaccine is relatively simple to distribute (re 2°C to 8°C). Making rapid nationwide rollouts feasible, alongside ultimately bringing the curtain down on this dreadful virus.
Companies: Mpac Group PLC
Initiating with a Buy rating. We initiate our coverage of Proton Motor Power Systems (“Proton Motor”) with a BUY rating and a target price of 201p. Our valuation equates to a market capitalisation of £1.47bn, compared to a current share price of 65.5p and a market cap of £479m.
Companies: Proton Motor Power Systems Plc
Seeing Machines has announced that it has licensed its Occula® Neural Processing Unit to OmniVision Technologies Inc. This advances the relationship from the MOU announced in September 2020 and builds on a relationship that is over five years old, with the two organisations having worked on multiple automotive programmes with a number of Tier 1 customers.
Companies: Seeing Machines Limited
Directa Plus has released a trading update guiding to revenue for FY20 of approximately €6.5m. This is 9% ahead of the €6.0m in the trading update from 3 December and 18% ahead of our expectations of €5.5m which were set on 24 September 2020. The strong trading performance has been primarily driven by the sales of G+ enhanced face masks, including Co-Masks, and the strengthening performance of Setcar in the Environmental Division.
Companies: Directa Plus Plc
A £10m fundraising expedites the Protos project and opens the way for the £10.2m Peel warrant exercise in the current year. The funding will also give the company additional resources to pursue international opportunities. Adjusting for the raise and some timing differences, our UK only base valuation rises from 5.0p to the raise price of 5.5p and we see existing international opportunities taking this to 7.5p (from 6.9p) and including opportunities in Europe this could rise to 12.1p (from 11.2p).
Companies: Powerhouse Energy Group PLC
AFC Energy (AFC) – Corporate – Strategic Partnership with Ricardo
Companies: AFC Energy plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
Directa Plus has released a positive trading update, prompting an increase in FY20 revenue forecasts after a strong conclusion to the year. The outperformance has come from Setcar and, again, from better than expected sales of G+ enhanced face masks (one of the drivers of revenue upgrades in early December). The Group enters FY21 with momentum and, in our view, attractive medium term growth potential, having responded very well to the challenges of the COVID pandemic.
Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC Due mid Jan. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. Due 14 Jan. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb.
Companies: IUG CBP KAT APP RST DIS NICL BOKU CNIC HE1
AFC Energy has announced a strategic engineering collaboration with Ricardo (RCDO). It will focus on global opportunities for AFC’s fuel cell technology in marine, rail and stationary power sectors. The agreement should open sizeable new markets for AFC which are not yet reflected in our long-term projections or the market capitalisation. Our valuation is under review for a significant upgrade given recent positive developments.