The UK energy supply sector’s ability to pay generous dividends is the key attraction for many investors, helping to compensate for the industry being high regulated and having limited growth.
Most investors should be familiar with British Gas owner Centrica (CNA), as well as SSE (SSE) and National Grid (NG.). However, there is one smaller player which is enjoying a superb time on the stock market and which is leaving investors very excited about its prospects.
That stock is business energy supplier Yu Group (YU.:AIM), a minnow by comparison to its larger, better-known peers, but one that has delivered much higher returns for its shareholders than the FTSE 100 peers.
Yu Group joined the stock market in March 2016 at 185p per share. Its stock now changes hands for £11.15, equal to approximately 500% gain in a little less than two years.
It is shaking up a large UK business energy supply industry distinctly lacking in options and still virtually monopolised by the big six providers.
The £157m company now says it has smashed expectations for the year to 31 December 2017 with revenues to be ‘significantly ahead of current market forecasts.’
FORECASTS RAISED AGAIN
Analysts at stockbroker Shore Capital had been expecting revenue of around £40m to be reported for 2017, and £2.5m of pre-tax profit. Those figures have today been lifted to £44.2m and £2.6m respectively.
Strong sales and an excellent operational performance all round means a major upgrade to profit guidance too, and not just for last year, but through 2018 and 2019 also.
Contracted revenues for 2018 now stand at £50m versus £23.2m reported in September 2017, and £20m a year ago. That news sparks a big jump in the share price, rallying nearly 9%.
The strong performance should not shock regular Shares readers. We said just last week that investors were anticipating a very positive trading update today, and the company has duly delivered.
BEATING ITS OWN PROMISES
It is not the first time that Yu Group has smashed forecasts, a neat over-performance trick useful for any company trading on the stock market.
This has been reflected in the stunning share price run since the firm has been listed on AIM.
The question now is how high is too high for the share price? Growth is certainly very strong but a 2018 price-to-earnings multiple of close on 45-times may be difficult for some investors to swallow.
That said, we thought the stock was due a breather in May last year, having soared more than 50% in just a few weeks since the company featured as one of our weekly Great Ideas at 287.5p. And clearly we were wrong given how the share price has since performed.
