Smart Metering Systems PLC (LON: SMS) 

Smart Metering Systems PLC is an FTSE AIM UK 50 index listed leading independent provider of multi-utility infrastructure connections, meter asset management and energy efficiency solutions. Moreover, SMS provides an integrated approach to risk management across procurement, billing, energy efficiency and project delivery.

Recent trend of dividend payments

SMS will distribute the total dividend of 27.5 pence per share in four quarterly instalments attributable for FY21. Moreover, the Company had paid the first quarterly instalment of 6.875 pence per share on 28 October 2021, while the ex-dividend date was 30 September 2021. In Comparison, SMS paid a lower full-year dividend of 25.00 pence per share during FY20.

Growth Prospects

• Robust Order Pipeline: The Company had managed to increase the contracted smart meter order pipeline from 2 million as of 31 December 2020 to 2.75 million as of 30 June 2021.
• Acquisition Benefits: SMS had completed the acquisition of Industrial & Commercial (I&C) large power Half Hourly (HH) meter portfolio in April 2021 for approximately £8.4 million. Furthermore, the Company had acquired 15,000 I&C meters from a large energy supplier and successfully added £1.1 million to the Group's I&C meters ILARR.
• Strong Grid-Scale Batteries Performance: SMS had secured a further 50MW project and increased the secured pipeline to 290MW. Meanwhile, the Company had managed to increase the total pipeline from 470MW as of 30 June 2021 to 620MW as of 04 November 2021.

Key Risks

• Weak UK Energy Market: SMS had mentioned considerable turbulence recently in the UK energy market, with the failure of several independent energy suppliers and Supplier of Last Resort ("SoLR") mechanisms.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Rise in Interest Rates: New Zealand came up with a second interest rate hike in the last two months. Moreover, rising inflation worldwide had put pressure on several Central Banks as they struggled to curb it.
• Covid-19 Pandemic: The Omicron variant of the Covid-19 pandemic may adversely impact the top-line business of the Company.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Smart Metering Systems PLC.

Liontrust Investment Partners LLP is the most significant shareholder as it holds nearly 18.35 million shares as of 30 September 2021. 

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 13 September 2021)

(Source: Company result)

• Marginal Decline in Revenue: Despite the strong recovery in smart meter installations post-COVID-19, SMS’s top-line revenue witnessed a fall of around 5% during H1 FY21.
• Modest Profitability: SMS had managed to show a decent growth of around 5% in the underlying profit before taxation to £9.6 million after adjusting the disposal of the I&C meter portfolio.
• Decent Cash Balance: The continued investment in revenue-generating assets led to a significant drop in the net cash from £44.5 million as of 30 June 2020 to £5.6 million as of 30 June 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 30 November 2021, at 09:37 AM GMT, SMS’s shares were trading at GBX 794.00, down by around 1.37% from the previous day closing price. Stock 52-week High and Low were 1,038.00 and GBX 630.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at 35.39 levels.

Over the last two years, SMS’s stock price has delivered a positive return of ~46.23%, and it has outperformed the FTSE All-Share Industrial Support Services index (benchmark sector) with a return of around 35.28% and FTSE AIM UK 50 index (benchmark index) with a return of approximately 24.34%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had made significant operational progress during H1 FY21 as it upscaled the Grid-scale batteries and would continue to maintain the momentum throughout FY21. SMS had an adequate cash balance recently raised in the form of equity placement to pursue further growth opportunities. Moreover, the Company had anticipated underlying PBT to remain marginally ahead of the previous expectations. SMS may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the coronavirus. Overall, the Company aimed to enhance the contracted smart meter order pipeline despite the ongoing turbulence in the energy market.

Considering the recent contract wins, decent bottom-line business, strong leverage position, robust growth in dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Smart Metering Systems PLC at the current price of GBX 794.00 (as on 30 November 2021 at 09:37 AM GMT), with lower-double digit upside potential based on 74.15x Price/NTM earnings per share (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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