Shock EU ruling to reduce boiler volumes
Flowgroup is a pioneering energy products/services business, with the potential to transform the global boiler market. Its patented combined heat and power (CHP) micro boiler is half the price of comparable products, and enables households to save substantial amounts on their fuel bills over the life of the appliance. Today the Board reported that volumes of its revolutionary micro 'combined heat and power' (mCHP) boiler are likely to be materially affected over the next 12 months by a recent shock ruling from the European Court of Justice (ECJ) on 4th June. Here the ECJ determined that the UK's reduced VAT rate of 5% for the supply and installation of energy-saving products was "in breach of EU laws". Meaning that at the forthcoming budget on 8th July, the Treasury is set to hike VAT on loft insulation, solar panels and importantly Flow's boilers from 5% to 20%. In turn increasing the latter's ASP by circa £500/unit and temporarily delaying the launch of the company's crucial 'boiler that pays for itself model. Consequently our 2015 revenue and EBITA projections have been reduced to £45.7m (vs £104m) and -£20.2m (vs -£10.4m) albeit we still envisage the business to be very much back on track by 2017. Indeed, looking longer term once the cost-down programs have been implemented, there still appears significant upside for patient investors - with our new 48p/share price target (previously 100p) being triple current levels.
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