SMS profits spark higher after £14m takeover
Revenues at the Glasgow-based group jumped 52 per cent to £42.4 million in the year to the end of December, boosted by the purchase in April of UPL.
SMS paid £14m in cash and shares for the Cardiff company, which was set up in 1996 and provides energy management services to major banks and telecoms companies.
The deal, which marked the first ever acquisition for the Aim-quoted firm, brought with it 168 employees, swelling the workforce at SMS to 247 by the end of 2014.
Underlying pre-tax profits for the enlarged company soared by 66 per cent to £12.8m in what chief executive Alan Foy described as a “milestone year” for the business, which floated almost four years ago and counts the likes of British Gas Business and Total Gas & Power among its customers.
Foy added: “Everything we had envisaged for the UPL acquisition has come to fruition in less than a year. We have successfully integrated UPL into SMS, increased our recurring income streams and we have already expanded customer relationships to benefit from our new dual-fuel service offering.”
He said installations of the group’s ADM automated meter reading system more than doubled during the year to 41,000 and the order book for the device – which offers customers functions such as remote reading and half-hourly consumption data – continues to grow.
In a note to clients, analysts at house broker Cenkos said yesterday’s full-year results came in slightly ahead of its forecasts.
“SMS has an extremely attractive business model featuring high barriers to entry and increasing levels of index-linked recurring revenue,” it said.
“Our forecasts remain conservative but we anticipate further strong progress during 2015. In addition we believe SMS is unique in being the only listed company to provide direct exposure to the large-scale domestic smart metering programme, estimated to require about £12 billion investment.”
Cenkos, which has a “buy” rating on the firm’s shares, expects underlying pre-tax profits at SMS to grow to £17.4m in the current year, with sales forecast to rise to £52.9m.
The UK government has set a target for all homes and small businesses to have smart meters by 2020, which is expected to see the installation of some 22 million domestic gas meters and 27 million devices to monitor electricity consumption.
Cenkos added: “Whilst SMS is very well placed to capitalise on the roll-out of smart meters in the UK domestic market, its potential for additional growth is not reliant on this taking place.
“In addition to contract wins and extensions already secured through the dual-fuel electricity and gas service offering, there is the further potential to work with water industry customers.”
SMS is running international trials of its meters and said its devices have received full accreditation for use in the UK water industry. The non-domestic market in Scotland was deregulated in 2008 and competition is set to be introduced to the rest of the UK in 2017.
SMS chairman Paul Dollman, the former finance director of Edinburgh-based newspaper distributor and baggage handler John Menzies, said: “As we continue to invest in providing the highest levels of service to the gas and electricity supplier market we remain confident on the outlook for the business and we view the outlook for the market in 2015 as highly promising for our business model.”
SMS proposed a final dividend of 1.88p a share, lifting the total payout for the year by 22 per cent to 2.82p.
SUBSCRIBE TO THE SCOTSMAN’S BUSINESS BRIEFING