Bglobal: a smart bet on green energy drive

BUY

13/08/2010 James Crux

Our need for energy – secure, sustainable and, crucially, affordable – has never ranked as highly on the global political agenda. What’s more, these exceptionally straitened times are causing organisations large and small to rigorously examine their outgoings. So it stands to reason that any company that can help businesses both cut costs and reduce their carbon footprint should be well placed for profitable growth.

Bglobal, the smart metering specialist floated on AIM in 2007 with a £7.75 million fundraising at 50p, is one such case in point. Led by CEO Tony Barnes, Bglobal blazed the trail by establishing smart metering as a viable, low-cost opportunity for every business in the UK.

Capitalised at a shade over £40 million, this is a company on an impressive growth curve as it rolls out smart meters and data management services that are pivotal to the development of a low-carbon economy and the so-called UK ‘smart grid’, one of the utility sector’s current buzzwords. Its technology and services are also helping an ever-broadening array of businesses comply with energy management targets and the Carbon Reduction Commitment (CRC).

A slow burner on AIM to date, Bglobal has successfully passed through the pilot phase with customers and looks well placed to profit from international energy efficiency drives and the green agenda. Not only does smart metering have the support of the new coalition government, but energy suppliers are now implementing smart metering ‘business as usual’ strategies in industrial and commercial markets, while formulating strategies for the residential market.

Having traded profitably since October and won a succession of valuable contracts over recent months, Bglobal is worth buying for its growth prospects in the smart metering market as well as the ambitions of management, who hope to grow the business overseas and eventually take it into the FTSE 250.

‘Our business has an opportunity as we move toward the world of the smart grid,’ opines Tony Barnes, ‘and while we are currently focused on the UK market, with 1.5 per cent of all the power in the UK now being settled by our meters, we are very much a global play.’

Strategy

Though still small, Lancashire-based Bglobal has nevertheless made a huge impact on its chosen industry. Before it entered the energy market fray, there was no model for delivering smart metering economically and efficiently to millions of UK businesses. Only the largest UK electricity consumers could benefit from accessing energy profile data. Everyone else was on estimated, often incorrect, bills, bereft of the data that could give them real control and drive down costs.

It is no exaggeration to say that the company has completely changed the market landscape, since it provides remotely read, fully automated meters to businesses, large or small, at a fraction of the price. Bglobal has already installed more than 100,000 business meters and become the number one UK provider of smart metering in the so-called non-half-hourly market, covering most of Britain’s homes and businesses, helping them to reduce costs, cut carbon emissions and gain real control over when, where and how they use gas and electricity.

As the enthusiastic Barnes explains, ‘The model we pioneered has been universally adopted. We brought the whole “end-to-end” proposition to the market, we have first-mover advantage and still, to this day, what we are doing is groundbreaking stuff. There really isn’t a company like us in either the UK or Europe’.

Under Barnes, Bglobal’s strategy centres on the cementing of its position as UK market leader in smart metering solutions by installing meters and signing up lucrative contracts. In an impressive year to March, the group installed more than 40,000 meters (taking the number of meters in operation to 100,000), while its services revenues burgeoned by more than 130 per cent to £2.26 million.

Services sales will grow again strongly this year on the back of further meter installations following a busy period for contract wins last year. New smart metering services deals were signed with British Gas Business and Npower and sizeable orders won with new entrants, all with smart metering at the heart of their strategies, into the UK electricity market – namely Gazprom, Dual Energy Direct, MA Energy and BES Electricity.

Besides deals with energy suppliers, Barnes and his board place much strategic emphasis on smart metering deals secured directly with clients across an array of sectors. Some 45 new direct contracts were clinched last year, with the likes of Transport for London, Aviva, Capgemini, Land Securities, Greater Manchester Police, Dorset Fire Brigade, JD Sports and Manchester Metropolitan University.

Moreover, Bglobal’s growth prospects have been seriously enhanced following the recent £12.8 million takeover of energy data management concern Utiligroup, an acquisition financed with the help of a £6.76 million funding at 38p.

Utiligroup, the parent of Utilisoft, from which Bglobal was originally spun out, has secured recent new business with EDF Energy and Western Power Distribution and should enable Bglobal to position itself as a so-called ‘end-to-end’ solutions provider, with the ability to develop propositions for new revenue-generating activities including micro-generation feed-in tariffs, pre-payment metering and pay as you go.

Management

Non-executive chairman Peter Kennedy, a Lancashire-based serial entrepreneur, established forerunner Bglobal Metering in 2003 from within the aforementioned Utilisoft, the specialist in energy market business-to-business transactions in the UK, Australia and Europe, which he had co-founded in 1997. An entrepreneur of proven value-creation credentials, he enjoyed earlier success with QCL Systems, which he co-founded in 1983 and where he was managing director before its eventual sale to Optim in 1988.

Exuberant hot seat occupant Tony Barnes has spent more than a decade managing high-growth technology businesses, having previously been managing director of Utilisoft. Barnes, a former Granada TV newsreader, boasts significant experience in the technology, media and communications industries of Europe, the Far East and Australia, is highly motivated and has global ambitions for Bglobal.

Overseeing the group’s increasingly attractive numbers is finance director Nick Kennedy, an Oxford graduate who earned his accountancy spurs with Deloitte & Touche and added further strings to his bow during a two-year stint with Grant Thornton Corporate Finance. Kennedy knows the business inside out, having joined Bglobal Metering as financial controller at the tail end of 2005. Today, his key responsibilities for Bglobal encompass everything from forecasting to sourcing its meter rental securitisation funding.

Bringing a high degree of quoted company experience to the boardroom table is James Newman, who chaired the business from IPO until April 2009 and now acts as senior independent non-executive director. Newman currently chairs two AIM-listed businesses, the recycling products play Straight and pubs and petrol forecourt monitoring systems specialist Brulines. His CV also includes spells as chairman of Waste Recycling Group and as a non-executive director of Richmond Foods, before their respective takeovers in 2003 and 2006.

Prospects

It hasn’t all been plain sailing for investors since Bglobal’s IPO. As well as a slower than expected take-up of smart metering in the market, progress towards profitability was interrupted by the withdrawal of one of the group’s meter funding sources in 2008, causing a delay in rolling out orders. However, recent trading and growth rates have proved highly encouraging, with annual figures to March meeting the market’s expectations and showing substantial top-line growth once again as smart meter installation volume targets were achieved.

Sales were more than 99 per cent ahead at £13.23 million and Bglobal, which has traded profitably since October, reported an 84 per cent reduction in pre-tax losses from £4.28 million to £670,000 and closed the year with £2.2 million cash in its coffers. According to Barnes, last year’s progress reflected the fact that ‘several energy supplier customers moved their commercial and industrial smart metering activity from trial phase to business-as-usual’.

In a further positive development, high-visibility services revenues grew by more than 130 per cent to £2.26 million and should continue to build strongly following high volumes of meter installations as well as the Utiligroup takeover. Prospects at Bglobal are further underpinned by an order book that already covers analysts’ forecast revenues for the current year following the aforementioned raft of contract wins. And Barnes believes further deals will follow, stating that ‘we are now working on building orders for FY2012 and beyond’.

It is also important to note that existing forecasts ignore the potentially huge, though certainly longer-term, opportunity in the emerging residential metering market. Indeed, Barnes and his team are developing a fully funded smart metering ‘rollout and read’ proposition, in order to leverage the company’s expertise in the business market.

Valuation

For the current year to March, house broker Charles Stanley forecasts dramatic growth in turnover from £13.2 million to £29.6 million, from which Bglobal should swing strongly from losses to pre-tax profits of £4.4 million. By March 2012, the broker believes the top line could surge to more than £39 million, driving pre-tax profits north to £6.2 million.

Based on forecast earnings per share of 4.3p this year and 5.95p next, Bglobal shares, which have traded between 52-week highs and lows of 56.25p and 20.75p, are currently swapping hands on a lowly prospective p/e of just over ten times, which drops to roughly seven and a half times for the following year.

That rating fails to reflect either Bglobal’s market leadership or its profitable growth prospects and the shares are trading significantly south of the broker’s 70p price target. It is also worth noting that as profits ramp up and cash generation improves, the prospect of dividends could begin to loom on the horizon. Charles Stanley has factored in dividend payments of 0.7p and 1.1p to its estimates for 2012 and 2013 respectively, though nothing is guaranteed.

Tags: AIM, Deals & contracts, Fundraisings, Growth Stocks

Sector: Support Services

Companies: Bglobal

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