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)
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