Energy supply remains a volatile market. A growing crop of UK-listed companies specialise in providing power to businesses or advising on where they should buy it and how they can reduce consumption.
But wholesale prices fluctuate, it can be difficult to predict how much energy businesses will use and customer poaching in a fiercely competitive market is common. Some groups have handled the market challenges better than others.
Utilitywise, a consultancy managing utility costs for business customers, has suffered a brutal decline since it was Aim’s “company of the year” in 2014, a year in which its shares peaked at 368p. The price of the placing in 2012 was 60p. On February 1, when trading was suspended, the shares stood at 1.9p.
The company, which needs £10m of fresh funding to secure continued bank finance, has been unable so far to attract sufficient interest in a proposed equity raising so has put itself up for sale.
Problems began for the Tyneside-headquartered business when accountancy rules on revenue recognition changed. The company, which arranges discounts for its customers, had to repay £7.6m to an energy company in 2017 after overestimating energy use. Commission, based on customers’ future consumption, is part of Utilitywise’s revenues.
The company had to delay publication of its accounts twice as contracts were reviewed. Its shares were also suspended for two months early last year.
Having made a £31.4m operating loss in the year to July 31, 2017, its 2018 first half showed recovery, with a £617,000 operating profit, against a £13.2m loss in the previous first half.
However, aggressive competition and grappling with accounting changes have taken their toll, triggering the latest share suspension and review. Its 2018 full-year results are still unpublished.
Inspired Energy could receive a boost from Utilitywise’s troubles. The Aim-listed company is already the biggest energy procurement consultant in the UK by sales and has an Irish operation too.
It has targeted larger corporates than Utilitywise, which now account for 85 per cent of its sales. By not just procuring energy for them but advising on how to use it more smartly, it earns higher margins than a pure trader — about 36 per cent. It has also moved into the water market.
A recent trading update for 2018 said revenues were expected to be about 21 per cent ahead of 2017 and adjusted pre-tax profit around 22 per cent ahead.
The company made £8.8m adjusted pre-tax profit on £27.5m of sales in 2017, four times the 2013 level.
Inspired has avoided accounting problems by reconciling anticipated revenues to revenues received every month.
Based in Kirkham, Lancashire, the company made five acquisitions in 2018. It will continue to buy companies at a similar rate, said Mark Dickinson, chief executive: “The market is worth £1.2bn and environmental regulations are increasing so there is room for growth.”
The shares hit 18p after the trading update, giving a forward price/earnings ratio of 12, but analysts at Peel Hunt predict a price of 25p, with further upside if acquisitions perform as expected.
Yü Group has been tripped up by accountancy issues. Shares in the supplier of gas, electricity and water to businesses crashed from a £14.32p peak in March to 42p in December and are now around 124p.
Chief executive Bobby Kalar founded Yü in Nottingham because he was frustrated with poor service and prices from the energy supplier to his care home business.
Floated on Aim in 2016, the group reported a threefold growth in revenues, to £47m, in the year to December 31 2017 and profit of £1.8m.
In March last year, Mr Kalar predicted revenues and operating profits for 2018 and 2019 ahead of market expectations and the group raised £12m in a placing.
In October, Yü announced an accounting review because of concern over areas including historic accrued income — which make assumptions about how much energy customers will consume — and provision for bad debts. It also warned of a £10m drop in profitability, leading to a current year loss.
In November, the board appointed DLA Piper and PwC to conduct an independent investigation into its accounts. In December, the Financial Conduct Authority announced an investigation into the accuracy of the company’s financial announcements. The board warned of an adjusted pre-tax loss of between £7.35m and £7.85m for the year to December 31 2018.
Yü is debt free with cash of £14.6m at December 31.
Mr Kalar said it was winning new business at a reasonable margin, while being “more selective and prudent” regarding growth.
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