Smart Metering Systems

Recent AIM debutant and meter specialist Smart Metering Systems (SMS) grew sales by 28% in the six months to June amid continued demand for its services.

The Glasgow-headquartered company, which specialises in a variety of services for the gas industry such as gas meter installation, reported an increase in pre-tax profits from £704,000 to £1.5m on turnover of £7.4m. EPS increased from 0.6p to 1.79p while net debt stood at £1.4m. SMS joined AIM this June at 60p a share in a float that raised £10m.

In an interview with Growth Company Investor, chief executive Alan Foy enthused that the company was benefiting from investment into its IT system, noting that for every meter installed it receives an income stream. Foy argued that, as a result, 'Growth in our business comes from gearing and increasing our assets.'

Foy was keen to remark that the government has introduced legislation mandating that all commercial meters are 'smart' by 2014, with all residential properties in the UK to be made smart by 2019. Smart meters send data regarding energy consumption directly to the energy supplier without the need for a meter reading.

Analysts at house broker Cenkos are forecasting pre-tax profits of £3.8m (EPS: 2.4p) on sales of £15m for the year to December 2011. In 2012, profits of £4.9m (EPS: 4.4p) are expected on turnover of £17.2m. A maiden dividend of 0.4p a share is forecast for 2012.

The company is looking to profit through mandatory legislation, with recurring revenues offered via its business model with continual income received from each meter. SMS operates in a sector with considerable barriers to entry and is a relatively low-risk investment by sector standards. Buy.