Viridian - the holding company for Northern Ireland Electricity - has being making great efforts to diversify away from the core business of electricity distribution. Over the past year and a half, Viridian has set up a logistics management subsidiary Sx3, joint ventures with a number of finance companies using the group's customer database and now a telecoms joint venture with British giant, Energis.
Davy Stockbrokers is hugely positive about the joint venture with Energis and believes that enterprise value/sales multiples applying to European telecom companies imply a valuation for the joint venture running into "hundreds of millions sterling".
If that proves to be the case, then it will be a hefty return on the initial £20 million sterling (€30 million) that Energis and Viridian have committed to the joint venture over the next three years. This joint venture is essentially a mirror image of the Ocean tie-up between British Telecom and the ESB in the Republic.
Of all the diversifications by Viridian, Davy believes that the move into telecoms - where it will compete with the likes of BT and Mercury - is Viridian's most exciting new initiative, as it will use Viridian's distribution network quickly to build up a system which will link into Energis's network in Britain which services groups like Boots, the BBC and the Mirror Group.
"In this light there is potential to build significant revenues in what is a growing market within a sector which commands attractive valuations," says the Davy report. It adds that Viridian's 10 per cent discount to the British electricity sector and 29 per cent to the euro average is overdone given Viridian's potential growth acceleration.
Most analysts in Dublin include Viridian in their ideal portfolios and with good reason. Its core business is protected from regulatory changes for another three years and there is strong reason to believe that expansion into non-core businesses like telecoms will pay substantial dividends given the pedigree of the joint-venture partner.
