Questor share tip: Energy Assets jumps on npower deal

The smart meter business has signed a deal with npower that underpins dividend and profit growth, says Questor.

The deal will see Energy Assets install smart meters for 50pc of British Gas business customers
The deal will see Energy Assets install smart meters for 50pc of British Gas business customers Credit: Photo: PA/Reuters

Energy Assets
451p
Questor says BUY

Energy Assets [LON:EAS] last week signed an agreement with npower to analyse energy usage data for business customers across the UK, sending shares more than 10pc higher.

The deal which is a variation on an existing contract will see Energy Assets analyse data for some 60,000 npower customers across the. The contract was signed by BGlobal Metering, which energy assets acquired in April of this year.

Questor thinks the long-term outlook for the company is good. The company buys smart meters, installs them and 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.

Energy Assets should eventually reduce its debts. In the meantime the borrowing is asset backed by revenue-generating meters. The meter rental fees are guaranteed by blue-chip utility companies like British Gas and npower.

The core meter asset management division – responsible for 43pc of group revenue – is roaring ahead. The group reported 327,000 meters at the end of July, up from about 163,500 at the end of March.

The company is forecast to achieve pre-tax profits of £9.1m, on revenue of £34.8m, in the 12 months to March 2015. That provides forecast earnings per share of 26p. The dividend is expected to start in the year ended June 2016 at 16p per share, or a prospective yield of 3.5pc.

The shares have increase 42pc since we recommended them (Buy, 317p, October 4, 2013) and Questor still likes the growth profile and income potential and retains the recommendation. Buy.