The Energy supply business is flying
​Flowgroup is a pioneering energy products/services business, which we think could transform the global boiler market. Its patented combined heat and power micro (mCHP) boiler is half the price of comparable products, and enables households to save literally £000s on their fuel bills over the life of the appliance. It is also environmentally friendly and helps smooth peak electricity demand for the National Grid.
This morning we learnt that many clients leaving the 'big 6' energy providers are ending up at Flow Energy (FE), who on-boarded a net 70k in Q1'16, plus another 10k in April. Thus lifting its total customer base to 180k (+80%) from 100k 4 months' ago - helped by enhanced brand awareness, customer service commendations from the likes of 'Which magazine', and the release of attractive consumer packages.
Given this jump is net additions, we now believe the division will close 2016 and 2017 on 275k (vs 200k before) and 400k (vs 300k) accounts respectively. Furthermore, despite incurring acquisition costs of circa £25/client on much higher volumes, the group's net cash balance (vs £16.6m in Dec'15) is still forecast to exit Dec'16 at £7m (or £9.2m gross).
Today the company unveiled its overarching concept, called "Energy for Life". The idea aims for Flow to become one of the UK's leading 'one-stop-shops' for next generation energy products/services, including bundled supply, microgeneration, smart heating and connected home solutions. As a consequence, Flowgroup has just agreed terms with Daikin Europe NV for the provision of two additional cutting-edge heating products.
In terms of valuation, we have reduced our assessment of the boiler opportunity (1.5x 2017 sales) from 28p to 21p diluted share. Yet, overall, thanks of the uplift in FE, our combined sum-of-the-parts price target still nudges up a penny to 42p / share.
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