Barclays said that there was “little risk” of further early removal of meters following several “freak” incidents in 2018 when some of the company’s SMETS1 meters went ‘dumb’ when customers switched energy suppliers.
Analysts at the bank said these removals were “unique”, that utility firms “do not really benefit” from removals and that all meters now communicate with a central network irrespective of the consumers’ utility provider.
SMS has “some protection” against removals, which could in fact drive upside to revenues as utility firms not providing termination protection could pay higher rents on the meters.
However, while Barclays upgraded to ‘overweight’ from ‘equal weight’, the share price target was slashed to 545p from 650p, citing “uncertainty” over the asset life of SMS meters, highlighting that the company’s meters had a depreciation of around 20 years while traditional meters were around 40 years.
Despite this, Barclays remained positive, saying that the firm’s expected annualised recurring revenues (ARR) of £85.9mln for the first half of 2019 were “undervalued” with the further roll-out of meters and potential disposals potentially serving as a “catalyst to unlock value”.
In lunchtime trading on Monday, SMS shares were 1.4% higher at 459.2p.