This Utility Stock Is Growing Like a Tech Company—And It’s Dirt Cheap
Yü Group
Yü is a UK-based utility provider focused on serving small and medium-sized businesses. It’s currently experiencing rapid growth at a time when much of the competition is distressed, and by most metrics, the company appears significantly undervalued. I’ve found many UK small caps to be undervalued lately, but Yü stands out even among them.
The setup here is compelling: Yü trades at a valuation one would expect from a stable, mature company—yet it’s both profitable and still in what looks like a hyper-growth phase. Since its 2016 IPO, the stock has returned 688% (excluding dividends), suggesting the market is at least starting to take notice.
UK Utilities Market Structure
The structure of the UK utility market differs from many others. First, you have the distribution companies: National Grid (publicly traded) and National Gas (owned by institutional investors). Both hold effective monopolies, with the rates they charge regulated by a government body.
Next, there are the producers—companies that generate energy and sell it to suppliers, either through long-term agreements or spot pricing (which is highly volatile). Finally, the suppliers contract with end customers to provide electricity and gas.
Payment models for end consumers vary. Residential users are typically on either fixed-term plans or the government-regulated default tariff. Commercial customers generally enter into fixed-rate contracts or cost-plus agreements. Many energy suppliers collapsed after Russia’s invasion of Ukraine caused wholesale prices to spike. The regulatory framework at the time was lax, encouraging new entrants that weren’t sufficiently hedged.
Yü acquired customers through the Supplier of Last Resort (SoLR) framework, where failing suppliers' customers are transferred to surviving ones via a bidding process. These customers land on deemed contracts—a kind of default commercial plan.
Smart Meters
Smart meters are another important piece of the puzzle. Commercial customers with legacy meters must submit readings manually—monthly, quarterly, or annually—depending on contract terms. Smart meters, by contrast, provide granular, real-time usage data to both customer and supplier.
The UK government has been pushing for smart meter adoption for several reasons, the most important being demand smoothing. Since energy prices vary by time of day, shifting demand to off-peak hours improves efficiency and helps reduce generation strain. Smart meters make this shift possible.
Yü’s Business Model
With the industry context in mind, Yü’s model is straightforward.
1. Hedged Contracts via Shell
Yü’s biggest advantage is its relationship with Shell. Shell provides pricing data that lets Yü offer contracts with guaranteed profit margins while handling the actual hedge trading. This removes a major operational burden from Yü and reduces the need to post large amounts of collateral—unlike many of its peers. It also allows customers to lock in long-term rates with confidence. Yü offers bundled contracts for electricity, gas, and water.
2. Smart Meter Strategy
Smart meter installation is another key pillar. Customers benefit from convenience (no manual readings), transparency (real-time cost tracking), and savings (via time-of-use pricing). To access Yü’s most competitive rates, customers must use smart meters. Yü charges a smart meter fee as part of its energy contracts, generating £1.3M in recurring income from its installed base. Meters are expected to last 15 years.
The installed base jumped from 8.5k to 22.9k in 2024, and Yü has a target of 60k by the end of 2025. The company also runs an internal training program for engineers (or “technicians” in North America), allowing it to avoid outsourcing installations.
3. Digital-First Operations
Yü’s digital-first approach reduces support burden and improves customer satisfaction. Customers can view detailed usage data through an online portal, making bills easier to understand and reducing call centre volumes. Greater understanding also lowers the risk of billing shocks, helping retention and acquisition.
Ownership, Governance, and Capital Allocation
CEO Bobby Kalar owns 51.6% of the company, which creates strong alignment with shareholders. His equity incentives are tied to either EBITDA or smart meter installation milestones, both of which seem appropriately performance-linked.
Capital allocation has been balanced across smart meter investment, customer acquisition, and returns to shareholders. The dividend is capped at one-third of EPS and is expected to grow sustainably. While I personally prefer reinvestment or buybacks, UK investors tend to value dividends highly. At the current rate of 60p, the yield is 3.8%.
Yü has also repurchased some shares, though primarily to offset dilution. I’d prefer larger buybacks, but given the low float and limited liquidity, keeping the share count stable probably makes more sense.
Financials and Risks
Yü reported £48.8M in adjusted EBITDA, £44.5M in pre-tax profit, and £33.5M in net income. The key reconciling items include £13.5M in receivable impairments, £4M in stock-based comp, and £3.5M in net interest income. With a diluted market cap of £283M, this equates to ~8.5x earnings for a company still in strong growth mode.
The main risk is a fall in power generation prices, as Yü’s model relies on fixed markups over wholesale rates. Prices remain above pre-war levels but have come down from 2022 peaks. A resolution to the war in Ukraine could see Russian gas flow resume. While the EU has pledged to phase out Russian imports by 2027, I’m skeptical this will be fully enforced due to cost and political factors.
Even if pipelines reopen, total capacity would be about 150 bcm—down from ~320 bcm before the war, largely due to the Nord Stream sabotage. So while prices may decline somewhat, a full reversion seems unlikely. Lower power prices would also reduce receivable impairments, offsetting some of the margin impact.
Conclusion
I’m long Yü. It’s hard to say how long the company can keep gaining market share, but at this valuation, I’m comfortable with the uncertainty. One caveat: the stock is extremely illiquid. Buying shares is akin to trading a U.S. microcap under $50M in market cap. But given the high insider ownership and strong fundamentals, I don’t mind.
Let me know your thoughts in the comments—and if you follow any other blogs covering UK small caps, drop them below. I’m deep into this niche right now and always keen to read more.
Im confused. Why is it growing? what is doing to grow? why do you expect that to continue?