Inspired Energy: Realising The Growth Potential
Edison | May 08, 2014 08:10AM ET
Inspired Energy Plc (LONDON:INSEI) is well placed to take advantage of the growth opportunities afforded by the fast-growing and fragmented third-party intermediary (TPI) market. We expect strong organic growth in both the corporate and SME divisions to be supplemented by acquisitions where they add to Inspired Energy’s service offering and to its geographical reach.
The recent FY13 results confirmed the continuation of the strong trend established by Inspired Energy in recent years. Year-on-year growth figures were impressive: revenue up 45%, EBITDA up 34%, adjusted EPS up 40% and the proposed dividend up 55%. Since 2011 Inspired Energy has achieved a CAGR in revenue of 44% and a CAGR in the corporate order book of 53%.
h3 Order book provides platform for growth/h3Inspired Energy is seeking to continue its impressive growth trend through a combination of organic and acquisitive growth. The growth achieved in the corporate order book last year and growth since the year end (from £11.0m to £11.3m) establishes a strong platform for earnings progression in 2014. The rapid growth achieved in the SME business in 2013 and the plans for headcount additions in the current year should also favour growth. We believe that the fragmented market for TPIs offers attractive growth opportunities and that Inspired Energy is well placed commercially, operationally and financially to exploit that growth potential.
h3 Valuation: Pricing growth/h3Market expectations of continued growth at Inspired Energy have driven rapid share price appreciation in recent months. We believe that PEG ratios provide a better guide to valuation than static multiples as they more accurately reflect the rapid growth expected at Inspired Energy. Aligning Inspired Energy’s PEG ratio to that of the All Share Index produces a valuation of c 13.5p/share using base case forecasts but c 22p/share using more aggressive assumptions for growth in corporate order book sales. Based on our cash flow forecast, the current share price of c 14p implies discounting the cash flow at c 8.5% and a perpetuity growth rate of 2%. Using the more aggressive assumptions, a discount rate of 11% and no perpetuity growth is required to produce a share price of 14p.
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