It is impossible not to admire the vim with which Ovo Energy has attacked the stranglehold of the so-called Big Six energy suppliers. In the space of just a decade, the company has come from nowhere to become the UK’s second-largest provider. It has helped to loosen the grip that a coterie of firms had exerted over households for years, subjecting customers to lousy service and rip-off bills in the process. New entrants have introduced more choice and greater efficiency. Yet in the scramble for a solution to the energy crisis, ministers and the regulator shouldn’t rush to see dealmaking as the easy answer. Reports suggest both Ovo and Octopus, another newcomer that has made great inroads, are circling Bulb, the biggest supplier to run into trouble yet, as wholesale gas prices go through the roof. The temptation to see a piece of corporate finance alchemy as a quick fix is understandable. The system is buckling as smaller suppliers fall like dominoes – 10 have gone bust since August – exposing the fragility that has come from opening up the market, as well as Ofgem’s shortcomings in policing it. A sudden price spike shouldn’t be enough to spark chaos. With more adequate hedging and better capital buffers enforced, fewer would surely have unravelled. But the established names won’t be able to step in and take on customers forever in a loss-making environment. At some point the economics become unattractive, or worse, unsustainable.
Telegraph 5th Oct 2021 read more »
Adding a raft of new customers must be a novel experience for the energy supplier Centrica, although it’s taken an energy crisis to beef up the billing list. The British Gas owner, which last month announced it would take on more than 400,000 consumers from defunct energy companies, has been losing core UK energy customers for the past decade due to fiercer competition from smaller rivals and customer service problems. That’s not good when you are pivoting away from production and increasingly towards being a consumer-facing business. It explains why the shares are still in the doldrums, despite progress on mending the balance sheet. In fact, with an enterprise value of just 3.8 times forecast earnings before interest, taxes, depreciation and amortisation (ebitda) for next year, sentiment remains near a record low.
Times 6th Oct 2021 read more »