In a world of high energy prices — and one where every firm and household wants to become more eco-efficient, and the push for electric cars and charging infrastructure is gaining momentum — Smart Metering Systems (SMS) looks a good bet.
The £930 million business installs, owns and manages smart meters for customers including the energy giants, housebuilders, retailers and social housing providers. SMS also works on greener energy projects, such as converting Travelodge’s hotel estate to LED lighting, creating grid-scale batteries to store green energy, and installing electric vehicle (EV) charging points.
It is also inflation-proof: meter-rental and data fees both benefit from being set in line with the retail price index, which should negate higher interest costs.
The shares, however, have not performed: SMS has lost almost a quarter of its value in the past year and is now trading at 695p. Yet its main work on meters is a government-backed initiative, meaning reliable recurring revenues as a recent National Audit Office report showed that still only 57 per cent of homes have smart meters — a long way off the government’s target of 80 per cent by the end of 2025.
Even without that impetus of an accelerated roll-out, SMS’s performance last year was decent — it installed 45,000 meters a month — and this year it is set to put in 600,000 meters.
Meanwhile, the firm develops, owns and operates battery energy systems to store clean electricity whenever it is generated — and the capacity of this portfolio increased to 760MW last year and to 860MW by March this year.
A trading update on Tuesday should show more progress, as SMS uses cashflow from smart meters to help fund its investment in battery storage. Forecasts from National Grid suggest Britain’s energy storage capacity will need to grow four times over by 2030, with much bigger supplies of renewable energy. That growth opportunity — as well as strategic investments to accelerate growth in its work on EV charging infrastructure and data management — will dominate once the smart-meter side matures.
SMS has a solid dividend policy of paying out 10 per cent of average annual growth until 2024, as well as reliable cashflow. The Aim-listed firm’s price-to-earnings ratio stands at a hefty 40, but the growth opportunities are there and the UK’s net-zero targets should spur SMS on.
Liberum analyst Joe Brent gives the firm an ambitious £11.85 target price, flagging “exciting opportunities” in carbon reduction. SMS looks undervalued — buy.
