Sureserve has the energy for growth

Amid our August sunshine, Sureserve is an unseasonal stock. It does dull but important work in the energy sector, such as servicing gas and electricity supplies in social housing, installing smart meters, gas compliance work, and making sustainable energy plans for hospitals, libraries and crematoria.

Sureserve is a bit of a mishmash, with tentacles in construction work (such as lift shafts and ventilation) while recent purchases of small firms have bolstered its focus on energy services.

Half-year results were restated without numbers from two “old” Sureserve businesses, which are up for sale. It’s an Aim-listed tiddler deserving of a large warning label for any investor, but Sureserve is still well placed as sustainability continues its march to prominence for builders and landlords. The firm’s £7.5 million acquisition of CorEnergy, which helps clients use less carbon, is a sign of its new direction. It specialises in work in highly regulated industries. Its Everwarm energy saving subsidiary is well positioned for the push into heat pumps, insulation, and battery storage; its Providor business is rolling out domestic smart meters, while its gas compliance work is booming.

Sureserve’s order book increased by 50 per cent to £512 million in the six months to March on a year earlier, and 96 per cent of all of 2022’s expected revenues are already covered by orders. Its long-term relationships with local authority customers give valuable visibility over minimum future revenues.

Shares are down 12 per cent this year, now trading at 84p, in part because Sureserve has flagged — as with most British businesses — the “upward pressures” of inflation, admitting its (already fairly thin) margins will likely be hit. It’s not yet clear how much profits will be nibbled at by pricier wages (the firm employs some 2,600 people), as well as materials and fuel. Chief executive Peter Smith has talked reassuringly about some inflation mitigation written into contracts, allowing it to pass on some extra costs.

The shares are now trading on just over ten times prospective earnings, but there’s fair reserves of cash: Andrew Nussey at Peel Hunt (who flags the operational and strategic momentum at Sureserve as “impressive”) predicts strong cash generation in the second half should result in closing this financial year with net cash of £22 million. The reserves could provide “significant resources to undertake accretive M&A” he reckons.

Don’t bet your house on it — or even your upcoming winter heating bill — but Sureserve is a buy.