KKR's smart meter swoop is well-timed
07/12/2023 13:21
(The author is a Reuters Breakingviews columnist. The opinions
expressed are their own.)
LONDON, Dec 7 (Reuters Breakingviews) - KKR KKR.N is
getting an early Christmas present. Its infrastructure arm is
paying 1.4 billion pounds including debt for Smart Metering
Systems SMSS.L , which operates electricity gauges and battery
storage facilities. It’s a bet on rising demand for green
technology, helped by overly fearful shareholders.
London-listed SMS should be a catch. Demand for energy
meters and storage will see revenue grow by 15% a year between
2022 and 2025, according to LSEG forecasts. Yet such growth also
requires heavy investment and borrowing. SMS shares had fallen
27% since February as investors fretted over high interest rates
and a debt pile that could reach nearly 4 times EBITDA in 2025.
SMS’s depressed stock means KKR’s offer, while dangling a
40% premium, still only values the group at around 15 times next
year’s EBITDA. Analysts at Liberum reckon its shares are worth
24% above the 955 pence the buyout group is paying. If SMS keeps
growing sales at the same 15% a year and hits a 55% EBITDA
margin, it could be worth nearly 3.2 billion pounds in 2028 when
valued on the same purchase multiple, according to Breakingviews
calculations, more than double KKR's outlay. And, with interest
rates set to fall, SMS’s debt should become easier to bear. The
risk for KKR is that other funds, or even utilities, try to grab
its present before it can unwrap it. (By Pamela Barbaglia)
Follow @Breakingviews on X
Capital Calls – More concise insights on global finance:
BAT’s smokeless future is clouded in smoke urn:newsml:reuters.com:*:nL4N3D12QG
Nio is on the long road to trimming losses urn:newsml:reuters.com:*:nL1N3D1031
AI Davids ride coattails of industry Goliaths urn:newsml:reuters.com:*:nL4N3D03D3
Kuwait rings up small bill in tower merger urn:newsml:reuters.com:*:nL4N3D02MD
Roche’s late obesity punt offers wider market cure
urn:newsml:reuters.com:*:nL4N3CZ2DJ
(Editing by Neil Unmack and Streisand Neto)