Inspired Energy — Update 18 November 2015

Inspired Energy — Update 18 November 2015

Inspired Energy

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Inspired Energy

Service, earnings and valuation enhancement

STC acquisition

Industrial support services

19 November 2015

Price

14.00p

Market cap

£66m

Net debt (£m) at 30 June 2015

2.3

Shares in issue

471.6m

Free float

38%

Code

INSE

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.4

17.9

33.3

Rel (local)

21.8

22.3

38.5

52-week high/low

14.0p

8.8p

Business description

Inspired Energy is an energy (electricity and gas) procurement and management services company.

Next events

Pre-close statement

January 2016

FY15 results

March 2016

Analysts

Graeme Moyse

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Inspired Energy is a research client of Edison Investment Research Limited

Inspired Energy (INSE) has announced the acquisition of STC Energy and Carbon Holdings (STC), an energy bureau, billing and management service provider. STC will broaden INSE’s service offering and geographical reach. We believe the acquisition could enhance INSE’s earnings in FY16 and the additional growth indicates potential share price upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

7.6

3.3

0.69

0.17

20.3

1.2

12/14

10.8

4.3

0.86

0.25

16.3

1.8

12/15e

13.4

5.2

0.94

0.31

14.9

2.2

12/16e

19.6

7.0

1.18

0.38

11.9

2.7

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Acquisition of STC Energy and Carbon Holdings

INSE has announced the completion of the acquisition of STC for an initial consideration of £9m (cash £5m + equity £4m) and a further £3m of contingent consideration payable in two tranches (50% cash/50% equity) up to 30 September 2017. STC is an energy consultancy based in Kent (providing an element of geographical diversification to INSE’s business) and possesses a range of energy bureau products and services, which INSE believes will allow it to target larger multi-site corporate businesses, increasing its pool of potential clients. STC is reported to achieve client retention rates in its business in excess of 90%, and in the year to 31 March 2015 posted revenues of £3.8m, EBITDA of £1.7m and pre-tax profits of £1.4m. The initial consideration price of £9m therefore represents c 2.4x historic sales and 5.3x EBITDA, broadly in line with the multiples paid for Wholesale Power (2.3x and 5.2x respectively), which INSE acquired in July. The acquisition of STC and Wholesale Power since the half year has increased the corporate order book to c £23m (versus £15.2m at the end of June).

Increases to earnings forecasts

Following the acquisition of STC, we have revised our forecast to reflect the acquisition cost, the new debt facility, the increased number of shares in issue (32.8m for the STC acquisition and 5.4m option related) since our last note and the contribution of the acquired business. For FY16 we now expect revenues of £19.6m (£15.8m previously), EBITDA of £8.2m (£6.7m) and EPS of 1.18p (1.13p). Our projected dividend for FY16 of 0.38p is covered 3.1x by normalised and fully diluted earnings.

Valuation: Upside

We continue to use peer P/E multiples, PEG ratios, a DCF and transaction multiples to provide a valuation guide for INSE. Based on our revised forecasts and using an average of our four valuation approaches, our analysis suggests INSE could be worth c 16p/share (previously 14p/share).

Exhibit 1: Financial summary

£'000s

2013

2014

2015e

2016e

31st December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

7,618

10,835

13,412

19,599

Cost of Sales

(1,009)

(2,312)

(2,741)

(4,066)

Gross Profit

6,609

8,524

10,671

15,533

EBITDA

 

 

3,549

4,556

5,651

8,160

Operating Profit (before SBP, amort. and except.)

3,499

4,439

5,481

7,646

Intangible Amortisation

(948)

(521)

(450)

(1,094)

Share based payments

(212)

(300)

(300)

(350)

Exceptionals

(359)

(458)

(319)

0

Other

0

0

0

0

Operating Profit

1,980

3,160

4,413

6,552

Net Interest

(234)

(179)

(273)

(691)

Profit Before Tax (norm)

 

 

3,265

4,260

5,208

6,955

Profit Before Tax (FRS 3)

 

 

1,746

2,981

4,139

5,511

Tax

(324)

(509)

(952)

(1,157)

Profit After Tax (norm)

2,941

3,752

4,256

5,797

Profit After Tax (FRS 3)

1,421

2,473

3,187

4,354

Average Number of Shares Outstanding (m)

406.2

416.9

433.3

475.4

EPS - normalised (p)

 

 

0.72

0.90

0.98

1.22

EPS - normalised and fully diluted (p)

 

0.69

0.86

0.94

1.18

EPS - (IFRS) (p)

 

 

0.35

0.59

0.74

0.92

Dividend per share (p)

0.17

0.25

0.31

0.38

Dividend Cover (normalised and fully diluted) (x)

4.06

3.45

3.03

3.09

Gross Margin (%)

86.8

78.7

79.6

79.3

EBITDA Margin (%)

46.6

42.0

42.1

41.6

Operating Margin (before GW and except.) (%)

45.9

41.0

40.9

39.0

BALANCE SHEET

Fixed Assets

 

 

2,680

3,730

19,665

18,352

Intangible Assets

2,333

3,120

18,220

17,326

Tangible Assets

297

560

1,395

1,026

Investments

50

50

50

0

Current Assets

 

 

4,299

6,975

12,758

13,472

Stocks

0

0

0

0

Debtors

3,369

6,200

7,500

10,500

Cash

930

775

5,258

2,972

Other

0

0

0

0

Current Liabilities

 

 

(2,636)

(4,302)

(6,308)

(5,169)

Creditors

(1,936)

(2,102)

(4,108)

(5,169)

Short term borrowings

(700)

(2,200)

(2,200)

0

Long Term Liabilities

 

 

(2,734)

(2,156)

(14,500)

(11,100)

Long term borrowings

(2,357)

(1,657)

(12,172)

(10,772)

Other long term liabilities

(377)

(499)

(2,328)

(328)

Net Assets

 

 

1,609

4,246

11,615

15,555

CASH FLOW

Operating Cash Flow

 

 

2,794

1,737

7,767

4,222

Net Interest

(234)

(179)

(273)

(691)

Tax

(768)

(133)

(952)

(1,157)

Capex

(503)

(1,008)

(1,705)

(345)

Acquisitions/disposals

0

(974)

(14,750)

0

Financing

(941)

407

5,116

900

Dividends

(650)

(797)

(1,234)

(1,613)

Other

0

0

(0)

0

Net Cash Flow

(301)

(947)

(6,032)

1,315

Opening net debt/(cash)

 

 

1,825

2,126

3,082

9,114

HP finance leases initiated

(9)

0

0

0

Other

9

(9)

0

0

Closing net debt/(cash)

 

 

2,126

3,082

9,114

7,799

Source: Company accounts, Edison Investment Research

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United Kingdom

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Utilitywise — Update 17 November 2015

Utilitywise

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