Spearheading the shift into digital power
​Flowgroup is a pioneering energy products/services business with a compelling mix of competitive domestic tariffs, some of the world's most exciting heating products and a growing connected home offer.
We think the answer to the UK's energy infrastructure challenges lies in 'smart grid' solutions - combining the latest advanced digital technology with domestic micro generation, renewables (eg solar, wind, tidal) and large-scale storage systems. At the vanguard of this transition towards digital power is Flowgroup, who today announced with their interims another landmark agreement, this time with industry giant Intergas, to supply its state-of-the-art smart boilers into Britain.
This deal comes hot on the heels of two similarly significant contracts signed with Daikin Europe ($18bn sales) in April for the provision of their cutting-edge Combination and System boilers, which are set to start shipping in Q4'16 and H1'17. Together, we think that these partnerships with 2 blue-chip, industry heavyweights represent further concrete evidence of the increasing quality, scale, reputation and importance of Flow's services within the UK energy sector.
Flow Energy (FE) is going through a huge growth spurt too - expanding its customer base by 120% in H1'16 from 100k on 1st January to 220k by the end of June, and again up to 255k on 1st September, with the latter set to deliver annualised revenues of c. £127m, equivalent to ARPUs of c. £500 pa.
In terms of mCHP boilers, there has been no change in the regulatory environment since May's shock proposal by the Department of Energy and Climate Change (DECC) to limit the amount of installations that can benefit from Feed-in-Tariffs (FiTs). Nonetheless, because of this uncertainty, and on top of the BREXIT-induced devaluation of sterling that has pushed up imported component prices by >10%, the board have sensibly decided to slow down volumes, with just 37 mCHP boilers fitted so far since soft-launch in April.
With regards to valuation, our sum-of-the-parts price target has been held at 42p per share - offering significant potential upside compared to current levels. Naturally we appreciate that this will need to be revisited once the DECC findings are published.
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