THE WINNER FROM THE 7-YEAR RETAIL ENERGY WARS

26 November 2021

A story of typical incompetent interference by Big Govt in what should be the private sector.

COMPANY RESULTS

Revenues up 6%, customers up 0.5%, total services (energy, broadband, mobile) up a fraction. Earnings down a fraction (settlement with Ofgem cost £1m). Mostly from TEP's supply contract with e.on (elec and gas). Interim dividend 27p no change yielding 1.27% at 1446p. Then add expected 30p Final would give 3.94% forward yield.

THE STORY

The little profit utilities make goes out in divis and repairing or upgrading the network. SSE or NG as examples.

But govt thought utility customers needed better deals so the utility companies were put into competition with new intermediaries who were buying wholesale and selling retail. Competition pushed pricing into the short term with switching and even utilities Co.s themselves making special offers.

All well and good? Except that now offers began to appear at below cost, with new customers being walked up to a more sustainable price.

After complaints, the regulator again intervened, thinking a price cap reviewed bi-annually would solve this.

Along came sky-high gas prices (quite why is another fascinating story) and these new intermediate suppliers came tumbling down like nine pins.

So much for govt ingerence. "Good luck with that", you'd have advised them!

LAST MAN STANDING

Where did that leave Telecom Plus? It had another strategy, not short-term switch-and-burn, a strategy it initiated 20 years ago. 

Its supply side is to buy bulk long term eg the e.on contract. 

Its customer side is to offer all services in one convenient bill, perhaps more expensive than if you managed things yourself, but you sign up and have nothing more to trouble you. It pulls in new customers not with screaming headline advertising, but through a network of 40,000 "partners", ie word-of-mouth.

In the current crisis, this strategy has left it as "last man standing".

TO BUY OR NOT TO BUY

This means an unexciting but competently run company providing a long-term investor with a stable income (divi) stream for their  money. Not of much interest to the trader I wouldn't think. Buy, hold, put on DRIPS.