The Daily Telegraph

The market has given up on this stock, which means that we will not. Hold on

Sometimes shares can become too cheap if investors simply capitulate and move on. We shall do the opposite

- RICHARD EVANS

Fulcrum Utility Services has not had a good energy crisis. Added to our Inheritanc­e Tax Portfolio in 2019 at 45.35p, the shares have lost 52pc so far this year and now stand at just 6.3p.

One melancholy expression cropped up repeatedly in the company’s annual results published last month: “onerous contracts”. By this it meant contracts with energy suppliers, related to the installati­on and management of smart meters, that had become loss making as a result of the turmoil in the energy market. It suffered in particular from the insolvency of several of its smaller energy supply customers and one of its subcontrac­tors. These smart meter contracts are by no means the whole of Fulcrum’s business, however: it also handles the complex business of connecting new housing developmen­ts and commercial premises to the gas, electricit­y, water and fibre optic networks. Often it goes on to own and manage the infrastruc­ture it has installed. But although the company did report problems with one complex electrical installati­on, it seems that the smart meter arm lies at the heart of its problems.

It has set aside £5.6m to cover the cost of those “onerous contracts”. This and £5m in further “exceptiona­l items” were the biggest contributo­rs to a pre-tax loss of £14.2m (against £11.5m last year) on turnover of £61.8m, compared with last year’s £47.1m. The company said it had also suffered the effects of inflation and labour shortages.

What is it doing about all this? It has installed a new management team, led by Antony Collins, the chief executive, who joined the company in January, and has raised new money from shareholde­rs, so it now has net cash in the bank. It also has a new strategy: it has “refocused its attention on its core multi-utility contractin­g and asset ownership growth strategy”.

It also said that, “to protect the business”, it had “agreed to mutually terminate [smart metering] contracts affected by the UK energy crisis”.

Reading between the lines, it sounds like Fulcrum is abandoning the smart meter business, or as much of it as it can. A focus on contractin­g and asset ownership strikes Questor as sensible: its collection of skills in the former is rare and therefore valuable, while the asset ownership arm offers dependable income. As ever, the proof will come in the execution of this new strategy, and for this we will simply have to be patient. While it is perhaps too much to hope to make good all our losses, at least in the near term, this column suspects that the market has given up on the company and that the shares have been punished too severely.

This certainly seems to be the view of one non-executive director, Jonathan Turner: he owns, either directly or via his own company, Bayford Group, almost 30pc of Fulcrum’s shares. He topped up his holding last week. Such a vote of confidence from someone well placed to assess the company’s chances of recovery is hard to ignore. We will grit our teeth, while apologisin­g to readers for the loss so far, and hold on.

Update: Naked Wines

This has proved another deeply disappoint­ing holding in our IHT portfolio. On Wednesday evening a pair of troubling announceme­nts from the company led to a 42pc fall in the share price the next day. This followed a big decline over the past year; the shares have lost about 90pc of their value since April 2021.

The first announceme­nt said simply that one of its non-executive directors was leaving with immediate effect. The lack of explanatio­n and the fact that the director had joined the board just three weeks earlier unnerved investors. So too did the other announceme­nt, which seemed to signal a change of direction with vague talk of a review of “potential operationa­l and financial plans for the next 18 months”. It said its focus would be on “developing plans demonstrat­ing increased profitabil­ity, cost restraint and improved payback” and added that it was “in active discussion­s to address our credit facility to reflect any revised plan”.

None of this inspires confidence. However, it does seem to be a case of the market selling first and asking questions later and the sell-off looks extreme. While we await more detail from the company on those plans we will, admittedly with some trepidatio­n, hold on.

Read Questor’s rules of investment before you follow our tips: telegraph.co.uk/go/questorrul­es; telegraph.co.uk/questor

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