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JOHN COLLINGRIDGE: INSIDE THE CITY

Fulcrum plugged in to electric car boom

The Hague, the Netherlands - September 24, 2016: Plug in hybrid electric car charge point
Minnow energy supplier Fulcrum could be turborcharged by the electric car revolution
ALAMY

The looming electric car revolution creates a world of investment opportunities. Some of them, such as the car maker Tesla, are about as stress-free as turning on its self-driving software and taking your hands off the wheel: not very.

Shares in Elon Musk’s company slumped last month on the dawning realisation that its huge cash burn and patchy manufacturing record might be unsustainable.

Other opportunities bear slightly less risk. Behind this wave of electric cars is an infrastructure backbone that is clearly not up to the job. National Grid is trying to position itself as the solution, but I’m not sure this former nationalised behemoth is the answer.

One possible entry point is an AIM minnow, Fulcrum Utility Services, which works in the unsexy world of pipes and cables. A spin-out from National Grid, it floated on the junior market in 2010, drifting along quietly for a few years before jumping up sharply since 2015. At 61p a share, it is worth £130m.

In a similar way to Smart Metering Systems — an Inside the City tip from a year ago that has gained 30% — Fulcrum creates long-term revenues by installing and owning assets that generate returns over four decades.

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In Fulcrum’s case, the Sheffield company designs, installs and owns gas pipes and power cables that connect homes and businesses. It has tie-ups with housebuilders that use it to connect huge estates, and has linked whisky distilleries in the Highlands to the gas grid. It also owns and operates about 8,000 “dumb” power meters, and is toying with getting into smart meters.

As a result, Fulcrum now sits on a small but growing book of utility assets, worth £13m, which churn off cash as gas and electrons flow along its 422km of pipes and cables.

Using cheap debt to build assets that pay double-digit returns is a no-brainer, and it has just signed a new £20m debt facility. Fulcrum generated net cash of £2.1m to the end of September, and yields a dividend of about 3.4%. With a price to earnings ratio of 15 times this year’s estimated profits, it’s a decent time to jump on board.

Electric cars are the next target. In February it paid £22m for Dunamis, which specialises in electrical connections and also has a new electrical licence from the power watchdog Ofgem. Fulcrum has just signed a partnership with Chargepoint, which should lead to a flow of work installing the American market leader’s electric-charging stations.

The electric revolution could turbocharge this company. Buy.

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@jcollingridgeST

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