Pick of AIM by Miles Nolan

Global warming should clearly be a worry for us all. With the green sector a hot topic, I have identified three very different investment opportunities

Last month energy minister Chris Huhne announced that feed-in tariffs, which offer tax breaks on the production of green energy, will no longer apply to large projects – an area many VCTs were hoping to invest in. Though a blow to fund managers focused on solar power, there are still plenty of ways to gain exposure to the green sector.

Recent results from Sabien Technology confirm the energy savings specialist is starting to gain traction. Sabien manufactures and sells a smart boiler control branded as M2G that is retrofitted to commercial boilers in less than two hours. The software and install costs just £1,850 per boiler and has a payback of typically less than two years.
In the six months to 31 December, sales almost trebled to £1.1 million but more importantly the group achieved a pre-tax profit of £185,000 – its first move into the black.

Thanks to the energy, carbon and cost savings M2G achieves, typically between 10 and 25 per cent, Sabien has won a host of public and private sector work and boasts a sales pipeline of £5.7 million. Under the forthcoming Carbon Reduction Commitment, legislation states that companies using a set amount of energy each year must commit to reduce their consumption.

Gross margins are a tantalising 75 per cent; however, there is no recurring revenue, but with up to circa six million commercial boilers alone in the UK, the market is vast. Sabien also has Europe and the US in its sights.

Following the sale of its Canada based operations, Renewable Energy Generation now operates ten onshore wind farms producing 41 MW of wind capacity. The government has a target of delivering 15 per cent of energy consumption from renewable sources by 2020.

Indeed, 70 sites are being examined with a total capacity of a massive 560 MW. Renewable has £22 million of net cash but also plans to use project finance against its wind farms as it seeks to build an additional 20 MW of new sites a year. Wind farms are typically high-margin operations with low fixed costs, so provide an attractive investment scenario.

It also owns patents for a chemical-free process that converts used cooking oil into a clean fuel, though this is seen as non-core.

Tension in Libya has driven oil prices to a two-year high, further establishing the credentials of alternative energy sources. Renewable recently spurned a 67.7p cash bid, so with the shares at 53.5p and plenty of scope to expand, the shares look cheap. Results are due on 10 March and should provide further insight.

At the more speculative end is penny share Eruma, a supplier of security blinds and intelligent lighting systems. Eruma has had a chequered history on AIM but its Illuminex lighting arm recently secured three public sector contracts worth £200,000. The orders are for a police authority, a school and an NHS facility. This follows on from a recent £379,000 deal to upgrade and replace lighting at Bristol Airport. The hotel market is next on the hit list.

Eruma has also signed a partnership agreement with Concept Energy Solutions, a consultancy with expertise in energy and carbon management. The software developed by Concept can measure real-time energy usage to help address wastage.

Eruma manufactures reliable lighting that can save 70 per cent on running costs, as well as reduce energy and carbon consumption. Moreover, it has gained support from the Carbon Trust to help customers access interest-free loans to install its lighting. Eruma has struggled due to its need to secure working capital to deliver orders. Still loss making, Eruma has cut overheads and has a strong pipeline of potential new business. One for the brave.