Inflation proofed returns from AIM

Since arriving on AIM in 2011 at 60p per share (currently 930p) and a market capitalisation of only £50m (currently £1.25 billion), Glasgow headquartered Smart Metering Systems (‘SMS’) has evolved into a fully integrated energy infrastructure company.

SMS is a long-term holding in Fundamental Asset Management’s AIM IHT portfolios.

The global energy market has changed rapidly over the last few months and the requirement for a low carbon, flexible and secure energy system has never been greater or more acute.  The core focus of SMS is to facilitate a lower cost, lower carbon energy future.

At the time of its arrival on AIM, SMS was primarily a provider of gas infrastructure connection services and gas meter asset management services. It had also developed advanced smart metering technology solutions. Fast forward to the present time and the enlarged group now provides total energy solutions for its customers, helping businesses and consumers use energy for the better, with the aim of achieving a greener and more sustainable energy system.

In addition to their core meter asset management business, SMS now independently develops, owns and operates Battery Energy Storage Systems (BESS) that serve a greener, resilient, and more flexible grid and independent Electric Vehicle (‘EV’) charging solutions.

Inflation proofed returns

A positive trading update for its first half to 30 June commented how the installation of smart meters continued to pick-up with 230,000 installed during the first half of 2022, and the average monthly installation rate rising to 40,000 meters. As a result, the Group’s total smart meter portfolio increased to 1.9 million meters, with the order pipeline c.2.42 million meters.

The Group’s growing portfolio of smart meters supports plenty of reliable, inflation proofed, Index Linked Annualised Recurring Revenue (‘ILARR’), to which an annual RPI adjustment of +4.3% was applied on 1 April 2022.

The UK smart meter rollout continues to present a significant opportunity to grow their ILARR, with Ofgem requiring energy suppliers to exchange at least 85% of all meters to smart by the end of 2025. Ofgem has also proposed mandatory settlement of energy on a half-hourly basis, which would significantly increase the market size for these services from c.300,000 electricity meters to over 26 million meters by 2026.

SMS’ first grid-scale battery site (Burwell, 50MW) commenced trading at the end of January 2022 and the site’s current performance is well ahead of expectations.

New developments

The Group’s new Solopower solution, which was launched in 2021, aims to radically reduce carbon emissions within the UK’s social housing stock using solar generation and battery storage. Pilot projects are being progressed in over 1,000 homes across the UK, as well as early-stage projects in the Republic of Ireland.

Sustainability

The SMS website highlights how their investment case is rooted in sustainability, with its Sustainability Report providing detailed disclosure on the practical steps being taken to progress Environmental, Social and Governance (ESG) responsibilities within their business strategy, culture, and everyday operations.

Their ‘net-zero by 2030’ target will see SMS drastically reduce their organisational carbon emissions to achieve a balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere.

Green Economy Mark

SMS carries the London Stock Exchange’s Green Economy Mark. This recognises London-listed companies and funds that derive more than 50% of their revenues from products and services that are contributing the environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy.

Inheritance Tax receipts hit another record

HMRC’s latest figures show that Inheritance Tax (IHT) receipts for April 2022 to July 2022 were £2.4 billion, that’s £0.3 billion higher than in the same period a year earlier.

The Office for Budget Responsibility (‘OBR’) forecasts that as many as 6.5 per cent of estates could be liable for Inheritance Tax by 2026 – 75 per cent more than the 3.7 per cent that the figures show for the latest financial year.

With the AIM market down substantially from 2021 highs, now could be a great time to consider investing in qualifying AIM shares as part of a sustainable Inheritance Tax plan.

To find out more about the benefits of investing in AIM for Inheritance Tax planning purposes, where sustainability is also a key consideration, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894.

This video presentation here provides a brief introduction to the Fundamental AIM IHT portfolio service, while our webinar here reviews the second quarter of the year and discusses our ESG and PRI developments.

Fundamental Asset Management
www.fundamentalasset.com