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Fulcrum Utility Services: Growth With Further Upside Potential

ByEdison
Published 10/11/2012, 04:16 AM
Updated 07/09/2023, 06:31 AM
Poised for growth

Fulcrum (FCRM.L) implemented a number of significant changes in FY12, designed to complete the turnaround of the business and lay the foundations for growth. We expect it will reap the benefit of these changes in the current year and return to profitability. The discount at which Fulcrum trades relative to other utility service providers suggests the potential transition is not yet reflected in the share price.

Fulcrum Utility
FY12: A year of implementation
Fulcrum successfully enacted significant changes in FY12, including agreeing new supplier contract arrangements, reducing the cost base, introducing new management and IT systems, broadening the product range and hiring a new sales team. Last year’s changes were designed to turn round the business and lay the foundations for growth. We expect that FY13 will reap the benefit of the changes made last year.

Returning to profit in FY13
We have adjusted our forecasts for 2013 and 2014 to reflect a more cautious attitude to revenue growth, given the continued challenging economic backdrop and a more measured view of the scope for margin expansion. However, we have a more optimistic outlook on costs. We still expect Fulcrum to report a profit in the current year and build a cash reserve of c £11.5m by 2014.

Valuation: Potential for further upside
Even with our adjustments to profitability, applying an EV/EVBITDA multiple of 4.5x to Fulcrum’s 2014 projected EBITDA figure (a 10% discount to the average of utility service providers), but adjusting for the dilution caused by the participation options, would still produce a valuation of 25p/share. A share price of 25p would also be equivalent to 2014 P/E multiple of just under 8.0x.

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