Utilitywise (LON:UTW)

Share Price 66p                                                        Market Cap  Circa £59 million

Bid/Offer   65.25p - 66.75p                                      Normal Market Size 1,500

About the Company

Utilitywise (LON:UTW) is an independent utility cost management consultancy. Utilitywise provides services to assist it's clients in achieving better value out of their energy contracts, and to advise them how to reduce their energy consumption as well as lower their carbon footprint. The company has just over 40,000 business clients. The company is one of the larger players in a crowded market in the energy procurement sector.

Started  back in 2006, the company was very much built on clever marketing hype, and over enthusiastic profit projections. Investors tore into the share as a growth share. Unfortunately, profit targets could only be achieved by aggressive accounting practices of revenue recognition. 

The company accountants and auditors must have thought at that point  time that their accounting policies represented a reasonable statement of the company affairs. Outside observers familiar with revenue recognition reckoned they were vastly misleading in reality. Hence the p/e multiple generally remained low to reflect the doubts which proved to be a value trap for private investors. Looking at the simple bald numbers in published accounts has been the downfall of many an investor.

On June 29th 2017

Utilitywise in its latest major hiccup is paying back a major client refunds on substantial profits declared in previous years.

Accordingly, the Group will recognise an accounting charge for the full potential impact, estimated at £11.2m, subject to external audit, in its income statement in the year ended 31 July 2017. £7.7m of this charge is expected to be recognised as an exceptional item, with the remaining £3.5m reducing the underlying profit before tax of the Group in the same period.

As a result the company's net debt is going to creep back up to circa £20 million which is still within its banking limits of £25 million. The balance sheet is overloaded with goodwill that need to be written down. If the company was forced to do a rights issue because of another failure, it would mean heavy dilution for existing shareholders.

Staff Recruitment

Staff numbers are growing but the staff turnover rate is 20%+. Certain sections can approach 40%. I…

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