Inspired Energy PLC (LON:INSE) made five acquisitions last year and there’s every chance it will make five more in 2019, says Mark Dickinson, chief executive.
“We are the one of the only buyers in a highly fragmented market with an ageing entrepreneurial owner base.”
Inspired Energy deals with the energy needs of Britain’s business community.
At present, Inspired Energy estimates there are 1.2bn business meters in the UK.
Of these, it directly supplies 129,000 and 350,000 indirectly, which leaves a lot more to go for.
“The UK energy system is complicated,” says Dickinson.
Most businesses don’t have the expertise in-house to deal with this complexity, so we sit between the supplier and consumer and simplify things.
As businesses need to renew their energy contracts every 2-3 years, it is easier to hand responsibility over to Inspired to handle the details.
“Customers don’t touch a piece of paper relating to bills.”
Just how tricky it can be to navigate Britain’s energy maze has been made crystal clear recently by a host of retail suppliers and small business specialists going bust.
Retail is not Inspired’s market, says Dickinson (it has no retail customers), while small and medium enterprise (SME) clients account only for 15% of revenues.
The core of its business are corporations that at the top end can be spending £120mln on energy a year.
Transparency, reliability and protection from volatility are what these customers want.
Inspired agrees a tariff from a menu of services beforehand so everything is clear. Cash is collected from the power supplier.
Once a customer agrees a basic energy package, Inspired offers other services including compliance, legality and how to use less energy more efficiently.
All told, Dickinson estimates that the market is worth £1.2bn comprising £350mln for the pricing element and £850mln for the additional services.
Inspired’s sales in 2018 rose 24% to £32.7mln.
Corporate division sales were 34% ahead at £27.3mln, with organic revenues rising by 8%.
Underlying profits in this division were 44% higher at £13.8mln.
As important, according to Dickinson, was a sharp rise in the forward corporate order book, which improved by 36% to £53mln.
“This remains a consistent guide to the future performance of the group, providing strong visibility of revenues for FY2019 and the next three years,” he said, alongside the results.
Investors were rewarded with a hefty 18% dividend increase to 0.65p.
Acquisitions are the bedrock of the strategy.
For example, Inprova, the largest of last year’s acquisitions and acquired in December for £19.5mln, gave orders a healthy boost and will contribute fully to earnings in the current year.
And there is no shortage of potential similar deals.
Dickinson estimates that the £350mln price market is 75% penetrated by companies like itself and is highly fragmented.
Inspired is the largest in the space and that fragmentation amounts to a great acquisition pipeline for a business focused on consolidation.
The company is geared to do 4-5 deals a year but can do more, he adds.
“It’s straightforward buy and build model.
“We are looking for medium to long-term organic growth of 6-8% in a highly fragmented market.
“That should not be difficult through good pragmatic management of a proper business.”
A higher share price would help and Dickinson expresses frustration about how lowly the business is rated currently.
“The integration of Inprova is going very well and where we are priced is nonsensical.”
A solid performance this year enhanced by a couple of acquisitions would go some way to change that, but in the meantime “We will grow EPS and let the market take care of itself.”
At 17p, Inspired is valued at £121mln with a yield of 3.8%.