The lure of an 8% dividend yield and potential for significant market share gains are reasons to examine energy efficient products play Entu (UK) when it arrives on AIM (30 Oct). The home improvement products specialist, to be valued at £65.6 million, looks set fair for growth in a fragmented market with strong underlying fundamentals.
Entu has placed existing shares with institutional investors at 100p a share, raising £32.8 million for two board members and a long-term backer who will each sell down half their stake to have a combined 50% ownership upon listing. The sellers are investor Brian Kennedy, chief executive officer Ian Blackhurst and chief financial officer Darren Cornwall.
No new money is being raised but the listing will boost brand awareness and help Entu tap the markets for future acquisitions. Given its strong cash generation, the Manchester-headquartered company says it intends to pay a dividend equal to an 8% yield for the financial year to October 2015.
The business helps customers improve the thermal efficiency of their homes through the sale of a wide range of home improvement and energy efficiency products and services. These span energy efficient windows, doors, conservatories, boilers and solar power generation products. The AIM hopeful also sells insulation products and repairs and renewals service agreements.
Blackhurst’s strategy is to drive organic growth by enhancing the product range in energy efficient boilers and low carbon products such as high margin solar photovoltaic installations, whilst cross-selling under the nationwide Entu brand.
Margins should benefit from a growing proportion of web-based sales, slashing the cost of customer acquisition. The entrepreneurial boss espies opportunities in smart energy control products such as remote intelligent heating and lighting automation controlled by smartphones, a nascent market expected to triple in size over the next three years.
Entu’s national coverage of installation and service centres provides a platform for organic and acquisitive growth in a highly-fragmented market. It sees all of the UK’s 27 million residential homes as potential customers and can reach 80% of them within one hour. Being a listed company could help attract small-yet-successful energy efficiency businesses as acquisitions targets.
Improving consumer confidence is benefiting the UK doors, windows and conservatories market, while government incentives encouraging home ownership and promoting energy efficiency offer tailwinds.
The real growth driver is the inexorable rise in energy prices and plans by the Government to install smart meters, which automatically take gas and electricity usage readings and transmit the information back to suppliers, in every household by 2020 in order to meet EU energy targets. Smart meters haven’t yet been proved to save people money but they will enable people to track energy spending on an hourly basis. That could raise awareness of energy consumption and prompt individuals to spend money to make their home more energy efficient.