The latest set of results from Inspired Energy plc (LON:INSE) revealed a company in rude health, both financially and operationally.
The AIM-listed group, which procures gas and electricity for companies, many of them large, blue-chip businesses, made major gains across the piece.
Revenues in the six months to June 30 rose 56% to £10.16mln, adjusted profits advanced 44% to £3.31mln, while the dividend grew by just under third to 0.13p.
A stellar performance
This stellar performance was achieved while integrating two decent sized acquisitions, Wholesale Power UK Ltd and STC Energy and Carbon Holdings. The latter cost an initial £9mln, making it the firm’s biggest transaction to date.
Stripping out the financial impact of the two recent purchases, organic growth was strong.
And it should be noted the home-grown improvement was achieved without expanding the workforce.
Cash generation for the period was £2.55mln, which reflects the increase in weighting of the corporate division, which helps large energy-hungry businesses such as foundries and food manufacturing buy gas and electricity.
Corporate was responsible for 72% of turnover, compared with 68% this time last year, with the percentage contribution from small and medium-sized firms falling to 24%.
Chief executive Janet Thornton is happy with the growth in this base of larger customers - which, it should be pointed out - hasn’t come at the expense of its smaller clients.
Providing consultancy and procurement services for large businesses generates a strong and stable earnings stream, renewal rates are high and there is the opportunity to cross-sell other products and services.
“We will see more of that as the switch continues into corporate,” Thornton told Proactive Investors.
Order pipeline in excess of £25mln
An order pipeline in excess of £25mln would tend to support that comment.
Looking at the balance sheet, the company is carrying around £8mln of debt, which at one-times EBITDA is “manageable”, said finance director Paul Connor.
In fact, there may even some headroom to make modest further acquisitions, he added.
And there are opportunities out there, according to CEO Thornton with tighter regulation acting as a driver.
“For some smaller businesses of say 10-15 staff, they can’t meet the current requirements.
"So they are prepared to sell; in fact it means there are a lot of businesses for sale,” she said.
“We can move quickly if they are a good strategic fit. We are good at the retention.”
With a supportive blue-chip investor base, there may be scope for larger, more ambitious buys.
But just where might the company look? “Water is de-regulating so that’s exciting,” Thornton said.
“The build-up and preparation for de-regulation means it could be a good earner for us on the corporate side.”
As the current crop of acquisitions beds in, Inspired is showing it can eke out some fairly substantial synergies from these transactions.
In fact the company was able to land a fairly significant new client when it began to cross-sell its services to STC’s client base.
“This is a powerful example of the ability of management to target modestly sized acquisitions that have a material and rapid impact on revenues,” said Michael Donnelly, analyst at Panmure Gordon.
The shares, which have drifted around 4% in the last three months and are now changing hands for around 14p, are worth 19p each, according to Donnelly.
He points out the stock trades on a comparatively modest 10-times 2017 earnings “having failed to participate in the post-Brexit AIM bounce for no clear reason”.
Shore Capital is upbeat
Looking at how the City expects Inspired to perform for the remainder of the year and into 2017, Shore Capital, the company’s broker, is upbeat.
It reckons the company will post revenues of £22.7mln this year, up almost 50% from 2015. EBITDA looks set to be in the order of £8.3mln, up 60%.
Analyst Robin Speakman is forecasting Inspired will pay out around 0.45p a share in 2016, representing a yield of 3.2% - which is much better than the best savings rate in the market.
He added: “We retain our view of a fragmented market in energy services that provides a sustained opportunity to drive growth.”