A decent sized, relatively liquid investment that’s uncorrelated to the UK economy and a good structural growth story to boot, now is an excellent time to buy Smart Metering Systems (SMS:AIM).

It is the only company that installs, owns, operates, and maintains gas and electricity smart meters on behalf of major energy suppliers in the UK.

Government regulation means all households and businesses need to be offered a smart meter.

While the firm swung to a £1.7m pre-tax loss in the six months to 30 June, which did highlight some inefficiency in the business, revenue was up 14% to £54.2m, ahead of expectations.

Because it is the only end-to-end provider of smart meters in the UK, SMS delivers and should continue to deliver predictable, inflation-linked revenues.

The firm’s share price has dropped from a high of 650p this year to hover around the 460p mark as its half year loss disappointed the market, but this could now be an attractive entry point.

There is a reason why the shares have gone out of fashion with the market.

In September the government pushed back the smart meter deadline by four years to 2024, so the installation bonanza the firm – and its investors – would’ve expected right now hasn’t happened.

The firm also has some operational issues which are forecast to drag on full year profits. It has over 500 engineers but not much use for them all with installations lower than expected.

But the firm is best placed to take advantage when business does pick up, and foresees a big ramp up of activity in the second half of its financial year.

BREXIT BALLAST

In addition, Liberum analyst Joe Brent thinks the firm should do well after Brexit, particularly in a ‘hard Brexit’.

He explained, ‘We view [Smart Metering Systems] as very uncorrelated to the economy. The key driver is bond yields which are likely to stay low in a hard Brexit.

‘If they closed the energy and installation businesses, and did not install another meter, we estimate that the shares should be worth 543p. We expect disposals near term to provide proof of value and further capital for expansion.’

That lack of correlation could be key.

Deal or no deal, the forecasts for UK economic growth aren’t great and many investors believe there’s a storm brewing over the global economy, something which again would impact the UK.

Particularly if Brexit doesn’t go well, investors will rush to find uncorrelated assets, i.e. bonds, property, gold – things that don’t go the same way as the stock market.

But stocks are still the most liquid, so a listed company which doesn’t go the same way as the economy will no doubt be attractive for investors. It’s likely SMS could therefore see interest from the market again.

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