US Edition 
Questor share tip: Smart Metering Services profits jump
The smart meter business reported rapidly growing revenue and profits in the first half of the year, says Questor.
Smart Metering Services
393¾p+13¾p
Questor says HOLD
SHARES in companies that install smart gas and electricity meters for industry look like a solid bet as they provide steady revenue and dividend income.
Aim-listed Smart Metering Services [LON:SMS] is one such company, and shares edged up almost 4pc yesterday on first-half results.
Government targets that require a new generation of smart meters to be installed are driving rapid growth. These meters provide constant data on gas and electricity use and potentially allow industrial customers to moderate their energy use, saving thousands of pounds.
Smart Metering Services buys smart meters, installs them and then charges an annual fee for their use. The upfront capital cost of the meters is then repaid.
The portfolio of meters installed increased by 13pc to 534,000 during the first six months ended June 30. Revenue increased by 44pc to £18.9m and pre-tax profit rose by 40pc to £4.64m.
The recurring revenue from the meters is contracted for many years and makes up around half of the first-half revenue for the group, the balance of the revenue comes from charges for installing new meters.
The company is currently in expansion mode to take advantage of the Government’s legislation on smart meters. Investment in new smart meters was 50pc higher at £15m in the first half. The company also spent about £10m acquiring UPL, a company that focuses on electricity smart meters.
Smart Metering Services is highly cash generative with cash from operations of £12.2m made in the first half up more than 80pc from the same stage last year. However, once the investment in new meters and acquisitions is subtracted, net debt increased to £48.6m from £33.3m six months earlier.
The company was confident enough to increase the interim dividend by 34pc to 0.94pc, ex-dividend October 16 and payable November 21.
Market consensus is for full-year pre-tax profits of £13.7m giving earnings per share of 12.8p. The shares are trading on 29 times forecast earnings, falling to 22 times next year. Questor thinks these smart meter companies should take about five years to pay down their debts before turning into cash machines. The shares are looking a bit expensive at the moment but well worth keeping an eye on for any dips. Hold.