Interactive Investor

Insider: trio buy this AIM share and a £500k bet on FTSE 100 firm

19th April 2022 07:51

by Graeme Evans from interactive investor

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Directors piled in after this company's 'impressive' results and analysts think the shares are still cheap. A big hitter has also invested heavily in a famous blue-chip.

smart meter sms energy 600

Boardroom buying of shares in Smart Metering Systems (LSE:SMS) has continued in the wake of results showing negligible impact from recent turbulence in the energy supply market.

The Glasgow-based company installs about 9% of new smart meters in the UK, but is also rolling out battery energy storage systems that can boost the transition to clean energy.

The shares have risen 19% since reassuring annual results on 15 March, when SMS posted a 20% rise in underlying profits to £18.3 million and forecast a progressive improvement in its monthly installation rate from an average 30,000 meters in early 2022.

New chief executive Tim Mortlock called the results “impressive“ and backed up his optimism later that day by picking up shares worth £100,000 at a price of 729p.

Non-executive director Jamie Richards spent the same amount a couple of days later at 743p, while last Wednesday it emerged that long-time board member Graeme Bissett had picked up £40,000 worth of the AIM-listed shares at a price of 830p.

The stock closed last week at 855p but City analysts at Peel Hunt and Liberum reckon there’s further upside with price targets of 1,159p and 1,185p respectively. And house broker Cenkos has described SMS as “substantially undervalued” based on its valuation of 1,386p.

Trading on a forward dividend yield of 4.2%, shareholders are due to receive their next quarterly instalment from 2021’s annual award of 27.5p a share on 28 April. The company’s policy is to grow the dividend 10% a year up to 2024, covered by long-term inflation-linked cash flows from the existing metering and data asset base.

SMS’s meter rental contracts are built with automatic RPI increases, meaning they also offer a hedge against current cost pressures. Index-linked annual recurring revenues rose 12% to £85.9 million in 2021, but an end-of-year order pipeline of 2.55 million meters is worth an additional £51 million.

There are also further growth opportunities in the market as regulator Ofgem has put binding installation targets on energy suppliers to ensure that at least 85% of all meters are exchanged to smart by the end of 2025.

Surging wholesale prices caused the failure of several suppliers over the past year, but SMS said the impact on its pipeline had been negligible. It has even benefited as firms are consolidated into larger SMS customers through the Supplier of Last Resort process.

The industry consolidators include Shell Energy Retail, which is SMS’s biggest partner and recently extended its exclusive relationship for another three years.

The industry’s smart meter rollout is due to complete by the end of 2025, but Cenkos said the growth opportunity from grid-scale battery storage projects looked to be considerable.

The first 50 megawatt (MW) site at Burwell, Cambridgeshire became operational in January and another 40MW in Barnsley, Yorkshire is due this summer. Connected to the National Grid, the batteries play an important role in storing clean electricity whenever it is generated.

SMS has significantly increased the pipeline to 620MW, and Mortlock believes it won’t be long before the first projects are demonstrating the “attractiveness of the underlying revenue streams and their importance as critical energy infrastructure”.

The assets have an expected life in excess of 40 years. Cenkos added: “Given the vertically integrated nature of SMS and its long-term utility project planning experience, SMS can construct grid-scale battery storage projects at extremely competitive cost levels.”

The company, which is developing other carbon reduction projects such as electric vehicle charge points, joined AIM in 2011 at a price of 60p. It was established in 1995 to provide services in the gas connections market following industry deregulation.

A Kingfisher (LSE:KGF) non-executive director has spent more than £500,000 backing the B&Q and Screwfix owner to revive its faltering share price.

Reckitt Benckiser finance director Jeff Carr, who has been on the board of Kingfisher since June 2018, bought 200,000 shares at a price of 259.7p last Monday.

The shares were more than 350p at the start of the year but have slid in line with the rest of the retail sector as worries mount about cost pressures and the consumer spending outlook. Kingfisher recently became only the third UK retailer to post annual profits of £1 billion.

Analysts at Deutsche Bank think earnings growth at Kingfisher will resume from the 2024 financial year, built around its strong exposure to the trade sector. They have a “buy” rating and price target of 335p, which compares with last week’s closing price of 259.4p.

Kingfisher’s recently published annual report shows that Carr had 10,000 shares in the company at the end of January and that his role generated a salary of £86,300.

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