focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
TEP is trading on a March 2024 P/E of 14.3 times. Yu Group will be trading on a Dec 2023 P/E of 7.1 times. Therefore TEP is on twice Yu Groups rating. To get the two companies on the same P/E Yu Group would need to be £25. I don't think that this would be unjustified!
Hi Sparky, The figure of 53,400 is given at the bottom of page 3 of Liberum's 23rdJanuary note.
25,500 at 31/12/22.
39,700 at 30/06/23.
53,400 at 31/12/23.
So if they are going along last year at 14,000 extra every 6 months they now need to increase that to 23,000 per half year in 2024.
I imagine that most of us will get most of our questions answered when Yu Group report their 2023 results on the 19th March. If anyone has any good questions they want answering then shout them up. I have a meeting with BK and PR on the 19th and happy to put any good questions to them. I will be asking if they think Liberum are fair moving their net EBITDA margin down from the high 8%'s this year down to 6% for next year, and why the fall is justified.
If the company is successful in getting 100,000 meters by the end of this calendar year up from 53,400 at the end of 2023. Then £800m revenue will be on the card at 8% gives EBITDA of £64m, leading to £48m PAT and fully diluted earnings of 300p for 2024. If 100,000 meters is achieved, then we should go into 2025 with £1bn of forward sales. Average £10,000 per meter.
After the Jan 2023 trading update Liberum predicted £6.5m of PBT and fully diluted EPS of 30.3p. The figures came in in March at £6.7m PBT and EPS of 30p. Interestingly, in the March 2023 note they were predicting for Y/e 2023 revenue of £350m but now they think £454m, PBT of £9.8m but now they think £41m, and EPS of 43p but now they think 171.7p
2227 I could agree more, Yu is a little disruptor in a massive SME energy market. If they reach their target of 100,000 meters by the end of this year they will have just 3% of the meters available in this market. The medium term target of 5% or 165,000 meters will probably be hit towards the end of 2025, (maybe in 2026!) They keep beating forecasts and is a great little gem, and a cash machine.
The one thing that really impressed me in the January trading update was not only have they booked £520m of sales in 2024 before it has even begun. But they already have another £300m in the book for 2025!
Two weeks tomorrow! I can't wait!
As I have explained before Sparky, I would love a share buyback. Along side a dividend. The reasons I have spelt out previously. A £20m dividend you get once and that's that. A £20m share buy back would reduce the number of shares in issue forever by one million shares, therefore every year the earnings are spread over 1m less shares. Also, imagine if Liberum needed to buy 1m shares how high that could push the share price up! I am only using £20m share buyback as an example as it roughly equates to 1m shares (so it keeps the figures easy!) I would expect a share buyback to be smaller. However, if I were a betting man I would say that we will get a share buyback, as I don't think Yu Group could find a better purchase elsewhere in the market than their own shares!
Hi N,
Thank you for your question. The answer is that eps growth will be more difficult with the spot price of gas around 59p per therm than where it was 10-12 months ago, (140p per therm.) However, there are some positives that have fallen into place over that time as well. I am now expecting somewhere close to £800m revenue for the current financial year. This will be achievable if the company reaches it's target of in excess of 100,000 meters by the end of this year. The company already has £520m in the book for this year, and if they nearly double the amount of meters at the end of this year as they have at the start of this year, then yes, £800m is achievable even at the lower gas price.
I am expecting the net EBITDA margin to be 8% this year. It would be higher if the gas price was higher, (into double figures would have been my guess, if it is 9% this year.) I have shaved a bit off for the lower gas price and that I expected bigger customers will come at lower margin. I have added a bit on for the new hedging agreement, (which is an unbelievable deal!) I also think that there will be a bit to add on as the bad debt provision still looks a little high. There will be around £6m coming from deposit interest this year even after special dividends have been paid. Liberum only have £1.6m in their figures!
It is worth mentioning that when I attended the capital markets day on the 21/11/23, I came away thinking that there would be tangible disappointment if the 100,000 meters was not exceeded. I also think that the company will give up a little margin to pay the third party introduces more to allow Yu Group to reach and exceed the 100,000 meters.
So, above is my thesis, what does that equate to: EBITDA £64m take of tax @ 25% £16m, gives £48m profit after tax or 300p of eps. I think 12x p/e for a disruptor is too low.
As the heading of this tread says word is spreading! At some stage when the herd finally wake up to this little cash machine the p/e will stretch to a silly level by a silly level 20x p/e is not out of the question! So yes, I am still comfortable with the share price target around those levels towards the end of this year.
At the end of last year I recall one of the trolls on the other site scare mongering about how the hedging agreement expiring at the end of 2024 was a business risk and that the 5 year agreement with Smartest was coming to an end, this would be a big problem for Yu Group Etc Etc.
On the 21/11/23 I visited the head office in Leicester and put that question to them directly. (Nobody likes a smart ar*e!) However, at 11:41 on the 22/11/23 when I was reporting back to the group on the investor day I wrote the following:
"Back in 2019 when the hedging agreement with Smartest Energy was signed, Yu Group was a £30m market cap company and had around 9,000 meters. The agreement comes to an end at the end of 2024, at that time Yu Group could have a market cap of >£600m, (in my opinion,) and over 100,000 meters. Smartest Energy will want to keep the business, but Yu Group will be in a much stronger negotiating position. If Smartest Energy do win the tender again, the terms will be much more favourable to Yu Group. There will be other companies invited to tender. The hedging business will be placed with one of 7 or 8 companies. They will have clearer visibility on the longer dated hedges and this will result in a higher margin for Yu Group. This is an opportunity NOT a business risk."
Wow! The RNS on Friday is far bigger than the market has priced in, in my opinion! This new agreement is game changing for the company. I am very impressed with the terms that the management have secured with one of the largest companies in the UK. Shell no less! If they have negotiated a new deal for 5 years WITHOUT margin on the forward hedges up to several BILLION of turnover. Also, if the chat is correct with a month of credit, OMG! This could mean that by the end of March cash will be £30m + £52m coming back, plus £50m (one month credit,) plus £10m profit for the first quarter. That's over £140m in the bank. That means at the current price the market is valuing a company that is making £40m profit per year at £80m (Market Cap £220m, less cash £140m.)
As many on this board have realised for a very long time............too cheap at current levels! Hopefully the 19th March will show this in spades. It is amazing that institutions are too lazy to do the sums! However, 3 weeks tomorrow when they put the price up on Bloomberg of Factset the p/e will say 7.6x, maybe that will encourage them to dig a little deeper.
Dave, £3.34m (20p) Dividend is not unreasonable. I also think we could get £3-5m share buyback at current levels. I am hoping that they have looked at a share split. I would not be surprised to hear some sort of timetable for listing on the main market. I am hoping the the first quarter average monthly bookings have remained around £60m (even with the lower gas price.) I am hoping that they indicate to Liberum that their 6% net EBITDA margin is too low. It's so exciting, there are so many things that could inject rocket fuel into this share price. I think that some other institutions will want some of the action, not just Miton. So happy to be involved in this little gem!
Peel Hunt have just finished a meet the manager presentation of the Miton Micro Cap fund. Gervais Williams was using Yu Group of an example of a company that can see it share price go up 10x since he bought it in 2020, going from £18m market cap to £180m market cap and still on a valuation that according to him is ridiculously cheap. He talked about the being £110m at the end of 2024 going to £140m at the end of 2025, and just on current broker forecasts which he indicated were conservative could justify a share price between 2-3 times it current level. He feels forecasts will be exceeded. He also said that if the holding got to 10% of the investment trust he would be forced to trim. Clearly, he feels like us that the company is totally undervalued at the current share price.
Reading the comments out from Liberum, they are pointing very much towards the 19th March being the date for the FY23 results. My view is they are best placed to know, as they are the house broker. I would love to see them earlier, but I would be very surprised.
I think you are right Sparky on a number of points, I think £750m will be achievable, even with the gas price around 60p per Therm, as you say we already have £520m in the bag. I also agree that private investors can't get their head around how a share can go from 50p to £11.50 and still be cheaper than it was when it was 50p. I tried to explain this to someone the other day, and they couldn't understand how it was possible. The fact that earnings has grown quicker than the share price rise over the last 5 years means it is now cheaper than at any time over the last 5 years. The growth of the company has outpaced the rise in the share price, and therefore it is now cheaper than in Nov/Dec 2018!
I think however, you are a little optimistic about 50,000 smart meters by the end of 2024. Even though the company pays the highest wages in the sector, there seems to be a problem getting the engineers.
4 weeks tomorrow we will all be a lot wiser and hopefully a lot wealthier, as I can't believe a P/E around 6 with the expected growth will be around for long. The first quarter will almost be over, and hopefully the average monthly sales has remained around £60m. To hit their target of 100,000 meters by the end of 2024 they will need to add 11,000 meters per quarter, up from 7,000 per quarter in 2023. The current share price is not pricing in any growth at all!
SNN, I was just doing a couple of sums, and the maths just don't add up!
Let's say £520m is already in the bag at 9% net EBITDA margin, that's £46.8m EBITDA. Double the interest that Liberum reckon £1.6m goes to £3.2m as I know you and I would get 3.2%pa on £100m average cash (minimum!) So that puts us at £50m less the 25% tax rate, gives £37.5m or 225p of EPS. NOT Liberums 172p. AND THAT IS ASSUMING THEY DON'T MAKE ONE SALE FOR 2024 DURING 2024????!!!!! Bonkers Liberum are way below where we will be for FY 24.
Minimum £200m at 6% EBITDA margin gives £12m, £9m less tax is another 53.5p of earnings. If 2024 eps is only 280p, I will be both surprised and disappointed. (Put it on 10x?) = £28 per share.
SNN I think that they sold half their holding, (taking back their original stake, (and a bit of profit!))
What I would love to know is what they bought with the cash that had better prospects?!?!?!
That trade would be worth tracking!
I don't want to put words in Sparky's mouth, but I think he meant to say: "If I was BK I WOULDN'T place say 2m of my shares when I know they are worth double" I know I wouldn't part with a quarter of my holding at this price around £11. But then I wouldn't sell 1/4 at £22 quid either, as the company is worth more than that!
One thing I don't understand is why Liberum reduce their net EBITDA margin from 9% to 6% in 2024 when £520m of Yu Groups 2024 sales are already contracted at the 9% margin. They are only predicting another £150m of 2024 sales (that's a joke!! £200-£250m minimum!!) Are they saying the company makes NO margin on these sales to get the 6% FY margin figure, or just leaving themselves lots of space for plenty of upgrades through the year??!!