Inspired Energy
Written by
Inspired Energy |
Service, earnings and valuation enhancement |
STC acquisition |
Industrial support services |
19 November 2015 |
Share price performance
Business description
Next events
Analysts
Inspired Energy is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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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