Overview
Fulcrum Utility Services Ltd (FCRM) is a Gas, Water & Multi-utilities company, providing multi-utility infrastructure and independent energy services. The company’s primary activities include independent gas transportation services and provision of unregulated utility connections in the United Kingdom. The company’s operations are divided into three reportable segments being Utility Asset Ownership, Infrastructure Services and Dunamis. The company’s Utility Asset Ownership business involves gas infrastructure assets ownership and transportation of gas using gas conveyance networks. The infrastructure services business caters the needs related to the connection services and utility infrastructure. Fulcrum Utility Services also provides project management, designing, technical engineering, audit and consultancy services throughout multi-utility and gas connections. The company is committed to becoming the most trusted utility brand in the United Kingdom. The company’s connections range from multi-site and multi-utility new connections to single-site alterations. In 2018, the company acquired CDS, Maintech Power and Dunamis to expand its in-house capabilities and market share.The company’s services include Specialist Gas, Outlet Pipework, Multi-Utility Connections, Electricity Connections, Fuel Conversion, Disconnections, Dual Fuel Connections, Professional Services, Electric Vehicle Charging, Maintenance and Gas Connections.
The current Chairman is Philip Holder. Daren Harris holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders 

 

Recent News

On 1st October 2019, Fulcrum Utility Services announced the departure of Martin Harrison. Mr Harrison stepped down from his position of Chief Executive and Phil Holder, the Chairman of the group, will take the day to day responsibilities of Mr Martin Harrison.

Segments

The company’s operations are divided into three reportable segments being Utility Asset Ownership, infrastructure services and Dunamis.In the financial year 2019, the company’s revenue from Utility Asset Ownership business and Dunamis business has increased, but from the infrastructure services business, the revenue has declined. Overall, the total revenue has increased for the period. The company’s adjusted EBITDA in FY2019 has increased from all the reportable segments of the company. The Operating profit and PBT (Profit before tax) from Dunamis business has increased in the FY2019, and Operating profit and PBT (Profit before tax) from the Utility Asset Ownership business and infrastructure services business have declined for the period.

Operational Performance

The company achieved sustained growth in the order book by 41 per cent to £60.5 million in FY2019 versus £42.8 million in FY2018. The company’s housing team was able to secure a new multi?utility housing project of £18.7 million in the financial year 2019, an increase of 74 per cent from the last year’s data. The revenue from Utility asset estate transportation surged by 53 per cent to £3.0 million for the period. The external capital commitments increased by 84 per cent from £10.4 million in FY2018 to £18.7 million in FY2019, providing asset earnings forward visibility. The company also enhanced its in-house talent and is looking forward to expanding into electric vehicle charging infrastructure and smart metering. The company’s first installation contract booked for 90,000 Smart meters and generated a revenue of £12.0 million over a 3-year period.

Financial Highlights – Financial Year 2019 (31^st March 2019, GBP, thousand)


(Source: Annual Report, Company Website)
 
For the financial year ending 31st March 2019, driven by an organic growth from company’s utility asset business and core infrastructure business, and contribution from recently acquired CDS and Dunamis, the company’s revenue surged by 20.4 per cent or £8.3 million to £48.9 million in FY2019 as against £40.6 million in FY2018. The gross profit in FY2019 was at £18,314 thousand versus £16,402 thousand in FY2018. The company’s adjusted EBITDA was up by 16.8 per cent to £10.0 million in FY2019 versus £8.6 million in FY2018. Due to an increase in the operating expenses for the period, the company’s operating profit declined to £6,029 thousand in FY2019 from £6,832 thousand in FY2018. Due to an increase in the non-cash amortisation and depreciation to £1.7 million for the period, the company’s PBT (Profit before tax) was reduced to £6.0 million in FY2019 from £6.9 million in FY2018. The adjusted PBT (Profit before tax) stood at £8.6 million in FY2019 versus an adjusted PBT (Profit before tax) of £7.9 million in FY2018. The company PAT (Profit after tax) attributable to shareholders stood at £4,934 thousand in FY2019 versus £6,656 thousand in FY2018. The company’s basic earnings per share stood at 2.3 pence in FY2019 versus basic earnings per share of 3.7 pence in FY2018. The company’s diluted earnings per share stood at 2.2 pence in FY2019 versus diluted earnings per share of 3.5 pence in FY2018. The adjusted earnings per share stood at 3.5 pence in the financial year 2019 versus adjusted earnings per share of 4.3 pence in FY2018. The company’s operating cash flow (net) increased from £3.1 million in FY2018 to £3.5 million in FY2019. The company’s net cash balances stood at £3.8 million in FY2019 versus £9.4 million in FY2018. The company’s Net assets/share increased by 17.8 per cent to 20.5 pence for the period. The company proposed a final dividend of 1.5 pence per share in FY2019 versus 1.4 pence in FY2018. The resulted total dividend would be up by 7.1 per cent from 2.1 pence in FY2018 to 2.25 pence in the financial year 2019.

Financial Ratios 
 

The reported gross margin in FY2019 declined by 1.1 per cent to 39.3 per cent in the financial year 2019 versus 40.4 per cent in FY2018and stood lower as compared to the industry median. The reported EBITDA margin of 20.3 per cent for the FY2019 stood lower than the industry median of 35.5 per cent. The reported operating margin in FY2019 was down by 4.5 per cent to 12.3 per cent from 16.8 per cent reported last year for the same period. The reported Pre-tax margin of 12.2 per cent for the FY2019 stood lower than the industry median of 18.9 per cent. Net margin reported was 10.1 per cent for the financial year 2019, reflecting a decrease of 6.3 per cent when comparedwith last year data for the same period. Return on equity for the Financial year 2019 stood at 12 per cent, which was lower than the industry median of 14 per cent. On the liquidity front, Fulcrum Utility Services Ltd.’s current ratio was lower than the industry median of 1.09, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Fulcrum Utility Services Ltd.’s was 0.07x, which was lower as compared to the industry median of 1.48x, reflecting that the company is less leveraged as compared to its peers.

Share Price Performance


Daily Chart as at November-12-19, before the market close (Source: Thomson Reuters)

On November 12, 2019, at the time of writing (before the market close, at 11:53 AM GMT), Fulcrum Utility Services Ltd shares were trading at GBX 25.50 and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 67.94/GBX 21.00. At the time of writing, the share was trading 62.47 per cent lower than the 52w High and 21.43 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 131,650.20; 30 days – 363,152.83 and 90 days – 752,979.73. The traded volume (average) for 5 days was down by 63.75 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.52. The outstanding market capitalisation was around £56.28 million, with a dividend yield of 8.82 per cent.

Valuation Methodology
Method 1: Price to Earnings Approach (NTM)



To compare Fulcrum Utility Services Ltdwithits peers, Price/Earnings multiple has been used. The peers are Aggregated Micro Power Holdings Plc(NTM Price/Earnings was 33.73), Alerion Clean Power SpA(NTM Price/Earnings was 16.82), Naturgy Energy Group SA(NTM Price/Earnings was 16.37), Rubis SCA(NTM Price/Earnings was 15.76) and Snam SpA(NTM Price/Earnings was 14.18). The average of Price/Earnings (NTM) of the company’s peers was 19.37x (approx.)

Method 2: Price to Book Value Approach (NTM)



 To compare Fulcrum Utility Services Ltdwithits peers, Price/Book Value multiple has been used. The peers are Enagas SA(NTM Price/Book Value was 2.15), Iniziative Bresciane Inbre SpA(NTM Price/Book Value was 1.50), Gail (India) Ltd(NTM Price/Book Value was 1.20), Alerion Clean Power SpA(NTM Price/Book Value was 1.05) and Thessaloniki Water and Sewage Co SA(NTM Price/Book Value was 0.93). The Average of Price/Book Value (NTM) of the company’s peers was 1.37x (approx.)

Risk Assessment and Growth Prospects

The company’s operations are impacted by the suspension of the capacity market and softening of the construction market for the short term. The company is looking forward to expanding into electric vehicle charging infrastructure and smart metering, which require large funding in the form of debt, which will increase the credit risk for the company. The company completed the acquisitions of CDS, Maintech Power and Dunamis to expand its in-house capabilities and which will help the company to add more customers. The company’s housing team was able to secure a new multi?utility housing project, which was over 74 per cent against the last year data.

Conclusion

The recent acquisitions made by the group has resulted in increased top-line performance,while the bottom-line performance has declined for the period. The company made good progress and is looking for further growth, both organically and through strategic acquisitions.

The company has acquired CDS, Maintech Power and Dunamis, which resulted in the expansion of in-house capabilities and will help the company to grab more market share in the future. The company also enhanced its in-house talent and is looking forward to expanding into electric vehicle charging infrastructure and smart metering.

Going forward, due to contracts wins in the instalment of smart meters, the company expects positive momentum and expects to see growth in both revenue and profit in the coming years.The company also have many projects under pipeline, which will help the company to achieve strong organic growth. 

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £33.74 million in FY15 to £48.91 million in FY2019. Compounded annual growth rate (CAGR) stood at 9.73 per cent.
 
Based on  above rationale and support from valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 25.50 (as on 11th November 2019) with single-digit upside potential based on 19.37x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 1.37x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 12^th November 2019).

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