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Questor share tip: Energy Assets grows by 20pc

This smart meter business to industry could be a dividend superstar for the long term investor, says Questor.

Millions of households are set to be hit with gas and electricity price hikes of as much as 10 per cent, it was claimed today
A rise of 5-10 per cent would add between £70 to £140- onto the average dual-fuel bill across the country, and trigger another fierce political row Credit: Photo: PA/Reuters

Energy Assets
321½p+½
Questor says BUY

ENERGY Assets is a small-cap company that installs smart gas meters to help industrial customers become more energy efficient, and Questor thinks the dividend prospects make the shares worth closer investigation.

The reason for this thinking is based on the business model. The company buys smart meters, then charges an annual fee for their use. The average meter costs £850, and generates £135 a year in rental fees for Energy Assets. The upfront capital cost of the meters is funded by debt that is paid off over an eight-year period, while the meter can last up to 20 years, and often well beyond.

At some point in the future, Energy Assets will be debt free and churning out cash. In the meantime that borrowing is asset backed by revenue-generating meters. The rental fees Energy Assets earns are guaranteed by blue-chip names such as British Gas and Gazprom; the fees also rise with retail price inflation for up to 15 years.

The core meter asset management division – responsible for 43pc of group revenue – is roaring ahead. The group reported 101,000 meters at the end of March, up from about 81,000 a year earlier.

The company said it was on track to achieve revenue of £24.8m, pre-tax profits of £6.61m and earnings per share of 18.9p for the year ended March. The most interesting part for investors is what is forecast to happen during the coming 11 months. Revenue is expected to increase to £29.5m and pre-tax profits to rise to £9.5m, lifting earnings per share to 27p by March next year.

That would mean the current price-earnings ratio of 17 times, falling to 12 times next year. What’s more, the dividend is expected to triple from 3p this year to 6p next year and then 9p the year after.

Energy Assets is a risky proposition as it is a relative minnow in size, worth about £90m, and first came to the stock market in early 2012. However, Questor likes its steady growth profile and income potential and retains the recommendation on the shares. Buy.