Rising energy prices are bad news for most of us. Not though for Utilitywise (UTW) which is finding strong demand for its services that help companies save on energy costs. Utilitywise, which floated on Aim in June 2012, caters mostly for the UK small and medium-sized business sector and has grown to become one of the leading energy consultancies in the UK. Services provided range from negotiating with energy suppliers to get the best energy rates, installation of smart meters, providing usage data and analysis, and advising on energy efficiency and carbon reduction.
- Beneficiary of rising energy prices
- Scaling up rapidly
- Secured contracts give good visibility
- Strong balance sheet with net cash
- Will need to successfully manage rapid expansion
- Limited track record as listed company
Utilitywise has taken steps to ensure it maximises the potential for growth in its end market by regularly scaling up its business. Market penetration by third parties such as Utilitywise, who sit between the companies and the energy suppliers, is still low at under 2 per cent, so there is plenty of business to go for.
Its current expansion phase - the third time that the company has scaled up its business - will see the number of energy consultants rise from 280 at the end of July 2013, to 400 by the end of July 2014. These consultants drive revenues by hitting the phones and calling companies directly to offer Utilitywise's package of services. And with an 'exclusive to Utilitywise' option to freeze energy prices until December 2018, they should get the customers' ear.
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Acquisitions have also played a key part in the company's expansion. Utilitywise bought three businesses during the last financial year, the largest being Energy Information Centre (EIC), which cost £15.5m. EIC rounds out Utilitywise's product offering and also broadens the customer base into the industrial and commercial market to complement Utilitywise's established strength in the small and medium-sized enterprises market. These acquisitions have been carried out while keeping the balance sheet robust and there was a small net cash position as at the end of July.
Recent full-year results indicated that the growth story is very much still on track. The company reported 61 per cent organic growth in revenue and an 81 per cent surge in adjusted pre-tax profit. All the metrics are pointing in the right direction. As at the end of July, Utilitywise had signed up 15,333 customers and managed 44,361 meters. That is a 53 per cent and 74 per cent increase, respectively, since the IPO. Contract renewal rates were at 76 per cent, a huge improvement from the 53 per cent at the time of the IPO, and another encouraging sign is that average contract values have been steadily increasing too - up 11 per cent on-year to £1,219.
| UTILITYWISE (UTW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 244p | MARKET VALUE: | £171m | |
| TOUCH: | 242p-244p | 12-MONTH HIGH: | 244p | LOW: 86p |
| FORWARD DIVIDEND YIELD: | 2.3% | FORWARD PE RATIO: | 14 | |
| NET ASSET VALUE: | 35p* | NET CASH: | £4m | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 10.9 | 3.30 | 4.40 | nil |
| 2013 | 14.4 | 3.90 | 5.40 | 1.00 |
| 2013 | 24.8 | 7.00 | 7.90 | 2.60 |
| 2014** | 42.0 | 12.50 | 12.50 | 4.00 |
| 2015** | 53.0 | 17.50 | 17.50 | 5.70 |
| % change | +26 | +40 | +40 | +43 |
Normal market size: 5,000 Market makers: 4 Beta: 1.2 *Includes intangible assets of £20.6m, or 29p a share **finnCap forecasts, pre-tax profit and earnings per share on adjusted basis for all years | ||||
Alongside clear momentum, the business also benefits from good visibility. As at the end of September, Utilitywise had secured future revenue - contracts that are signed and waiting to go live - of £18.2m. Guidance was for just over £15m of these contracts to go live, and thus drop onto the profit & loss (P&L), in the first half. The last full year's revenue was £24.8m, so that means a fair old chunk of forecast revenue for this year is already in the bag.
Of course, as with any story of rapid expansion, scaling up a business can be risky. A new energy consultant takes around five months to start generating revenue in line with the group average. For this reason, broker finnCap expects the current year financial results to be weighted towards the second half with roughly two thirds of full year profit before tax to come in the second half.
But there is every reason to expect that Utilitywise can manage its expansion successfully. It may not have a long track record as a listed company, but Utilitywise has been established for eight years, starting with just four employees in 2006 - so scaling up is something that has obviously been pulled off with aplomb in the past.
