UK Stock Story – Smart Metering Systems PLC
At the moment, we’re all feeling the pain of much higher energy prices, especially at the petrol station and in our energy bills. One tool helping us get a grip on our energy costs is the smart meter. Maybe you’ve seen these advertised, been offered one by your supplier or you may already have one installed? Often supplied and fitted free of charge by energy companies, they are also used by small businesses and more than 23 million smart meters are now installed across Britain[1].
There are two parts to a smart meter, there’s the meter itself, a small grey box sited in the meter cupboard, with mains wires coming out of it and a very basic LED display. The second part is the in-home consumer unit, with the full colour display, which is what we as householders usually see.
So, why is the government so keen for us all to have a smart meter? It is because these devices are seen as essential to the establishment of a smart energy grid, the modern, more sustainable way of running our power networks. The smart grid will employ a range of new technologies – with smart meters at the centre of this network – allowing for two-way communication between consumers and the energy network, enabling real-time, automatic responses to changes in demand for electricity. Armed with better data on the country’s energy use, network operators will be able to track electricity demand and ensure generation is better prepared to match it, making for a more stable, efficient grid. With less investment needed to fortify the grid, lower costs can be passed on to consumers, eventually saving us all money. For the consumer, what are the pros and cons of smart meters?
Pros
- No need for anyone to come to your house to read the meter.
- No need to submit meter readings manually.
- It’s easy to monitor your use and spending using the in-home display.
- Accurate bills – no more estimates.
- They can highlight faulty appliances or any safety issues.
- By helping to reduce energy use, they’re environmentally friendly.
- They work with solar panels.
- They usually support a bigger choice of tariffs.
Cons
- Early model smart meters might not work if you switch provider.
- In-home displays might be inaccurate, perhaps due to a poor signal in the home.
- On their own, they don’t reduce your bills – you need to use the information they provide.
- Some suppliers can’t support smart meters.
- Older less efficient homes don’t support smart meters
For most people, the positives outweigh the negatives. Setting aside the clear environmental benefits for the world of lower energy consumption, anything that can help us lessen the financial pain of rocketing energy bills has to be welcome.
To support this important market development, which is in keeping with our positive investment themes of Environmental Management and Resource Efficiency, we bought shares in Smart Metering Systems PLC (SMS) last summer. The company is at the forefront of the roll-out of smart meters in the UK and is very active in the transition to smart and low-carbon energy systems. Established in 1995 and based in Glasgow, SMS is approved by OfGEM to install and manage smart meters and carbon reduction assets to facilitate effective energy management. It currently manages over 4.2 million[2] smart meters and other data collection assets. After a pandemic-induced pause to the roll-out of smart meters, SMS is now supporting the installation of 30,000 meters a month[3].
SMS receives rental income from every operating smart meter it installs, and this generates very stable but growing sales. Operating in a very supportive regulatory environment, the company enjoys good operating margins growth from its core business, enabling it to pay an attractive dividend. There are good opportunities to expand recurring revenue, as SMS has an existing order book of over 2.55[4] million new meter points. Scope for further share price increases is provided by SMS’s other energy-related activities in big data, Asset Funding and Asset Installation – for example, the company is also active in grid scale battery storage, with a capacity pipeline of 620 megawatts[5]. The company’s first site, a 50-megawatt facility, is now operational[6].
With its focus on energy efficiency and carbon reduction, SMS has very good environmental credentials and it is already playing a major role in the UK’s transition to sustainable energy and eventually achieving the target of Net Zero. We’re pleased to own the shares.
Sources and References
[1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1059591/Q4_2021_Smart_Meters_Statistics_Report.pdf
[2] https://www.sms-plc.com/corporate/news-and-media/news-releases/trading-update/
[3] See footnote 2
[4] See footnote 2
[5] See footnote 2
[6] See footnote 2
Information is accurate as at 15.03.2022. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.