Feels like Paul Scott makes up the facts to fit his argument which tends to question the credibility of his article. His bio hardly inspires confidence in his judgement. From what was posted i dont think its factually correct as the last RNS outlined a major change to more closely align the revenues with cash flows and was a significant improvement over the previous policy although its still not as prudent as I would like. The point on the share sales is clearly factually incorrect.
I have been very critical of their accounting practices in the past but at that time the share price was around 140p. Once the effects of the new policy are understood (hopefully when the results are out on the 17th) then maybe the fog will clear and we can see the effect in real numbers. At under 60p I'd say its probably worth a punt.
'No wonder Directors overall have been massive net sellers of the shares, over the years,' wrote Paul Scott. I tried to check that. On directorholdings.com, I could locate only two sales in last 3+ years, one in May 2015, and another in December 2016. Total director buys were 2,040,078 shares or so, and total director sales were a paltry 460,000 or so From Feb2014 till today.
I wonder where Paul Scott got the impression that directors were massive net sellers over the years or am I missing something?
My opinion (Paul) - it's difficult to avoid the conclusion that this company hasn't really made much money at all in the past. A lot of the historic profits seem to have come from imprudent accounting policies, which the company is now being forced to correct.
A lot of investors forget that profit is not a black or white figure. There is often a wide range of possible profit figures which any company could report. This is because profit depends often on a whole range of assumptions & estimates. So an aggressive FD can flex the numbers around to suit the requirements of the CEO, and shareholders.
Cashflow is much harder to manipulate. When a company Inflates its profits, it leaves a trail behind, for us to spot, and follow. Profit in the P&L is a Credit, so the way double-entry bookkeeping works, there has to be a corresponding Debit on the Balance Sheet. That will normally be cash - because the customer has paid for the goods or services. However, if no cash has been received, then the only alternative is to book the Debit entry somewhere else on the Balance Sheet.
Normally, this will be either somewhere in Receivables /Debtors, or Intangible Assets (or it could be a negative entry in creditors). So all you have to do, to spot inflated profits, is to carefully scrutinise all the Debits on the Balance Sheet. In both the cases of Globo and Quindell, it was blindingly obvious that the profits had been overstated, as their Balance Sheets were groaning with unusual, and out-sized assets - in receivables/debtors, and intangibles. Those debits were largely fictitious obviously.
Some of Utilitywise's receivables also turned out to be fictitious, which I reported on here in Jun 2017, when it had overstated assumptions about energy usage by clients.
Where does it end? UTW's profits have been shown to be at best, dependent on aggressive accounting policies, and at worst, could be considered largely fictitious. No wonder Directors overall have been massive net sellers of the shares, over the years.
Where do things stand now? As I see it, the company's profits are highly dubious. However, you could argue that its debtors should eventually be received, as the parties owing the monies are the large energy companies.
Will today's announcement be the last skeleton in the cupboard? Or could there be even more accounting issues to come? I might have been prepared to have a punt on it, as a special situation, if it was debt-free, and had a nice pile of cash in the bank. However, sadly that's not the case - it is heavily reliant on bank support. For me, that's a deal-breaker. Why risk a possible 100% investing loss, when you don't have to? Can the company & its management actually be trusted? I don't know (although I'm leaning towards a clear "no" to that question).
So where there's any doubt, I just don't get involved in things like this any more. This share has been a disaster to date, and you'd have to be brave or foolish, or both, to get involved now, in my view.
While the recent disclosures have been disappointing, I can't agree with the diatribe below.
Looking at recent metrics, for a start UTW is now trading certainly below NAV and a ridiculous PE of 4 or so. Oh and a dividend yield of 9.3%. Hello.
I don't agree that the balance sheet is in poor shape, I make net debt 50% of just 1 year's profits. Or a debt/EV and also debt/equity ratio of 0.2. And this is taking only cash & receivables against total liabilities. Debt is not a problem here.
The profit as a % of EV (market cap) is an astounding 33% (or just 3x profit = market cap). Yes I hear you say - but all the above depends on that profit figure which is currently overstated, making the metrics look great. But even if the profit was 1 third or less of recent levels the metrics are still very good.
All we know is that the profit figures have been stretched out a little further. Some of the recent 7.6m in overpaid commisions may find its way back to UTW, as 7m is the expected max.
On the plus side their website update is excellent, and better than INSE in my opinion. And the business model is recession proof in many ways.
From their website. NB last updated 4.4.17, so he has presumably just below the figure where he may have to make a bid for the company, or am I getting mixed up? The figures ate some months ago but he does tend to hold stocka for the long term, doesnt he?
The Companys issued share capital consists of 78,479,436 ordinary shares of 0.1p each (Ordinary Shares), each share having equal voting rights.
The Company has been notified, in accordance with the Disclosure and Transparency Rules, of the following disclosable shareholdings representing 3% or more of the voting rights in the Companys issued share capital:
Significant shareholders (3% and above)
My opinion - there's a load more detail given in the RNS today, but I wouldn't bother reading it. The company now has zero credibility.
Myself and a few other commentators believed that the accounts were dodgy, and that has now been proven correct. Therefore I would treat this share as a bargepole job. If you can't rely on the accounts, then it's uninvestable.
Does it actually make any real profit at all? Given that so much profit booked in the past has now turned out to be bogus (i.e. based on incorrect assumptions), then I think this share is now impossible to value.
I wouldn't count on the high divis being maintained either - because the company has significant net debt. If you write off intangibles, and a chunk of the debtors, then the balance sheet doesn't look great.
Does anyone know what numbers of shares of UTW are held by Woodford in his various funds? Has there been any recent changes? Presumably he must have had insight into these contractural problems?
Thanks for any information!
The Board of Utilitywise, a leading independent utility cost management consultancy, announces that it has been made aware of apparent material levels of under-consumption in certain contracts placed with one of the major energy companies dealt with by the Group (the "Energy Company").
Utilitywise remains in positive discussions with the Energy Company and has agreed to make repayments of commissions, previously paid to Utilitywise, totalling GBP7.6m between June 2017 and December 2020. As a result of changes in internal controls by both the Group and the Energy Company since August 2016, which mitigate the risk of significant under consumption in the contracts versus the estimated usage agreed at the outset, The Board is confident that contracts placed after August 2016 with the Energy Company will show more normal levels of consumption over the lives of those contracts.
The Board however feels it is prudent to reflect the full potential impact of the payments in the financial statements of the Group at this stage, though is confident Utilitywise will receive some of the cash back from the Energy Company at the conclusion of the contracts. The majority of the contracts in question are ordinarily due to end in the calendar years 2020 and 2021, at which point the final value of commissions due to Utilitywise will be determined and the final cash position between the two parties then settled. Accordingly, the Group will recognise an accounting charge for the full potential impact, estimated at GBP11.2m, subject to external audit, in its income statement in the year ended 31 July 2017. GBP7.7m of this charge is expected to be recognised as an exceptional item, with the remaining GBP3.5m reducing the underlying profit before tax of the Group in the same period.
The Board expects to fund this recovery from the Group's operating cash flow and available banking facilities, including a substantial offset of the negative cash flow in the year ended 31 July 2017. This will be through a combination of the corporation tax impact of the above noted accounting charge and working capital management. Accordingly, the Board does not change its expectations in respect of net debt of the Group as at 31 July 2017.
The Board is satisfied that this issue is materially specific to those contracts placed with the Energy Company and that the risk of similar issues arising with other energy suppliers is low following changes in internal controls at the Group. Accordingly, the Board does not anticipate a risk to the future revenues, profits and cash flows of the Group as a result of a recurrence of this issue in other contracts.
Brendan Flattery, Chief Executive Officer, Utilitywise, commented: "Along with the Board, the management and I are confident that the risk of similar issues with other suppliers is minimal. We have been working hard in terms of preparing Utilitywise for its next phase of growth. Part of this process has been increasing the transparency of the balance sheet, including the decision to discontinue cash advances from suppliers as well as improving our internal controls and methodology for estimating future energy usage when determining contracts with our energy suppliers. With an extensive portfolio of services in place and a focus on providing a great customer experience, Utilitywise has a strong platform for continued growth."
The Energy Company has assessed the latest consumption levels on its total portfolio of c. 4,400 live contracts placed by Utilitywise. The Board understands that the consumption levels have been determined by the Energy Company to be, on average, significantly lower than initially expected at the inception of the contracts. This determination is based in part upon actual consumption levels p
As an unhappy investor I think you're bang-on. They're clearing the decks and will now need to prove their honesty and growth credentials before Investor's will believe them . It's not rocket science - just look at Inspred Energy.
the big issue with this company is, and always has been, their aggressive accounting and in particular accounting for revenue. The accounts show £41m of accrued revenue which in some cases wont be billed for over 3 years. That for me makes it uninvestable.
In the past this was a big issue for investors due to cashflow being weak compared to 'profit'. This was partially allayed 12-18 months ago by squeezing upfront cash in advance from suppliers - a practice which they now say they are discontinuing so the next 6-12 cash flow will be very poor hence the share price slump.
At some point they will probably have to change their accounting policy to be more conservative and more in line with cashlow. Until they do that its always going to be down rated accordingly
Utilitywise: strong opportunity for growth, says Shore Capital
Shore Capital is backing energy services company Utilitywise (UTW) in its new long-term plans for the business.
Analyst Robin Speakman retained his buy recommendation on the stock, which dropped 11%, or 17.5p, to 140p after it declared a first half loss of £6 million, down from an £11.8 million profit last year. With exceptional items excluded adjusted profits rose to £9.4 million from £9.1 million with an interim dividend of 2.3p.
The company also announced that executive chairman Geoff Thompson would step down to be a non-executive chairman.
We believe that Utilitywise is building foundations for its longer-term performance, the next half sees the company moving into a critical delivery phase, in our view, with the launch of water and gearing up the smart solutions across the group, he said.
Looking at valuation, we take a risk-adjusted approach looking at a market with strong opportunity for growth.
Having been a shareholder here, I moved across to INSE (similar activities) some time
ago. No regrets. Solid progress at INSE. Results out this morning. May be of interest to
those who want to be invested in both companies.
Utilitywise to benefit from link up with Business Stream, says Shore Capital
Energy and water consultancy Utilitywise (UTW) has partnered with non-domestic water supplier Business Stream, which Shore Capital said would enhance cross-selling.
Analyst Robin Speakman retained his buy recommendation on the stock, which was trading flat at 190p yesterday.
The utility services specialist has announced a partnership with Business Stream, the UKs third largest non-domestic water supplier, he said.
This agreement leverages the ongoing deregulation of the UK water market in England. This appears to us to offer another strong business partnership to Utilitywise. The strategy here is one of cross-selling between the organisations to leverage respective customer bases to offer business clients simplicity in billing and control of the utility bills, so potentially bundling services.
Business Stream, post the acquisition of Southern Waters non-domestic customer base, taking effect in April 2017, services c.190,000 clients.
Utilitywise faces operating issues but valuation still adds up
Growth at Utilitywise (UTW) may be constrained as the energy and water consultancy tries to resolve operating issues.
Shore Capital analyst Robin Speakman retained his buy recommendation but does not have a target price on the shares, which fell 8.5% to 130.4p yesterday.
[An] update from Utilitywise confirms a better cash performance for the year to end July 2016 but also reveals that the operating difficulties in the core enterprise division have continued resulting in slower revenue build than anticipated with a knock-on impact to EBITDA, he said.
The group has still generated strong growth overall, but resolving the operating issues in the enterprise division now potentially constrains growth for the current year.
Speakman reduced his revenue forecast for the year by c.£10 million to c.£95 million.
Given a strong balance sheet, we anticipate growth investment plans to continue with cost investment continuing and an unchanged ability to drive dividend growth. On valuation grounds, we retain a buy stance.
City broker finnCap covered the results in a report published this morning, highlighting staff attrition as a significant challenge to the company in H2, but saying cash flow had improved and net debt has been significantly reduced.
finnCap believe staff attrition has presented a significant challenge to the company in H2, reducing productivity and limiting EBITDA:
"Energy Consultant headcount was 625 at July 2016, flat on the end of H1. Staff attrition has continued to be a challenge, limiting sales growth to 19% in FY 2016 and reducing productivity so that EBITDA is now expected to be up slightly on last year (greater than £18m)."
However, despite low profit growth, Utilitywise's enterprise customers grew 21% y-o-y and an estimated 75% of sales came from new customers.
Analyst Guy Hewett also highlighted that the company had improved it's commercial terms and cash flow, meaning net debt was down considerably:
"Net debt at the year-end was £0.2m, down from £10.2m at H1 and better than our original forecast of £3m. We estimate operating cash conversion was approaching 100% in the full year (over 200% in H2), significantly better than the £2.5m operating cash outflow in 2015 as improved commercial terms benefited."
Read Edison's note on UTILITYWISE, out this morning, by visiting https://www.research-tree.com/company/GB00B6WVD707
"In H116 Utilitywise (UTW) again posted strong growth and is on target to meet market expectations for FY16. We expect further growth in H2 and beyond and our valuation analysis indicates potential upside in the shares ..."
Change to payment terms - good news - Utilitywise has successfully managed to persuade another energy supplier to pay it more quickly.
This has been the company's Achilles Heel in the past - a balance sheet groaning with debtors, and hence question marks over its revenue recognition policy.
...The supplier has agreed to amend its terms such that any future extension secured to a contract that has not expired receives the same cash payment terms as for a new contract, in this case 80% of the expected revenue from the contract falling due on the extension signing and the remainder at maturity subject to the normal reconciliation process. We have also agreed that this change of terms will apply to historic accrued revenue balances and we will therefore receive £2.251 million (inc VAT) in cash from the supplier prior to the Company's financial year end on 31 July 2016.
My opinion - this is clearly a step in the right direction, although I would like to see the next set of numbers before considering putting this back on my list of investable shares.
Interim results - for the 6 months to 31 Jan 2016.
The P&L figures look good, e.g. adj. diluted EPS is up 21% to 9.8p for the half year.
Net debt has risen to £10.2m.
Balance sheet - still looks mighty peculiar to me. There is a long term debtors figure of £25.7m. This hasn't fallen, it's actually still rising. I'm not comfortable with that.
My opinion - I have 2 worries with this company - firstly its revenue recognition policy, and associated extended debtors.
Secondly, I'm not convinced that profits are sustainable. After all, it's a rather unnecessary intermediary. What if the energy companies decide they don't want to keep giving away some of their profit margin to intermediaries such as Utilitywise? The business could be wiped out overnight. However unlikely that might seem, it's possible, and that puts me off this share.
"Another boss is off: this time it's the turn of LSE:UTW:Utilitywise's Geoff Thompson. Having grown the utilities broker from a small bedroom outfit into a Â£150 million company, he's moving upstairs to the chairman's role. Of course, the process ..."
Read Panmure Gordon & Co's note on UTILITYWISE, out this morning, by visiting https://www.research-tree.com/company/GB00B6WVD707
"CEO steps up to chair, large contingent release on t-mac, but better cash collection from one client. 89% increase in net accruals...."
Energy and water consultancy Utilitywise (UTW) has partnered with technology provider Dell in an internet of things project.
Liberum analyst Andrew Bryant retained his buy recommendation and target price of 270p on the shares, which rose 6.2% to 171p yesterday.
Utilitywise has announced that it has been named as original equipment manufacturer partner by Dell as part of a joint strategy to introduce internet of things building automation solutions to customers, he said.
This agreement highlights the value and opportunity in the T-Mac acquisition and further supports the increasingly positive mix shift in group earnings.
Bryant added: The partnership highlights that management has built a leading market position with a business model positioned for further significant growth and improving quality of earnings. The challenge alongside the top line execution and cash conversion is to transition the model from largely out-bound led to a multi-channel value-added service, maintenance and repairs service and the partnership with Dell adds to that strategy.
Read finnCap, Liberum and Panmure's notes on Utilitywise (UTW), out this morning, by visiting www.research-tree.com
Liberum says "Utilitywise has announced that it has been named an OEM partner by Dell as part of a joint strategy to introduce Internet of Things (IoT) Building Automation solutions to customers. This agreement highlights the value and opportunity in the T-Mac acquisition and further supports the increasingly positive mix shift in Group earnings.."
finnCap says The group has announced a new partnership with Dell which will address the Building Energy management system (BeMS) market. A 1,000-customer trial is due to commence shortly. While this is potentially disruptive technology, the timing of commercialisation and quantum of financial returns are at this stage uncertain and, as a result, our forecasts remain unchanged following the statement
Panmure says "Management guided to faster expected headcount growth in H2 than in H1 where it had been slightly slower than expected. The pipeline fell by 6% from Jun 15 to Jan 16, but we would expect it to show flat to modest growth since that time. What we really want to see to allow us to get more bullish, is improved cash collection on NON-extension business, although we think there is little prospect of this at these results. We hope for an update on the £27m of net accruals (o/w half are two years distant) "
There are short-term concerns around energy and water consultancy Utilitywise (UTW) but it is still expected to rerate over the next 18 months.
Liberum analyst Andrew Bryant retained his buy recommendation and target price of 270p on the shares, which rose 1.3% to 174.3p yesterday.
Utilitywise has released a trading statement which confirms that the company has performed in line with management expectations during H1, he said.
The two key features are an increase in the go live rate from the order pipeline and a faster rate of growth in new business compared to extensions. The valuation reflects concerns around profit and loss provisioning, cash collection and lower energy prices. However, delivery of forecasts and higher cash flow backing of earnings per share over the next 18 months should drive a rerating of the shares back to 200p+.
I have read Paul Scott's views on UTW and clearly he is not a lover. I respect his opinions and read them on a daily basis. He will be the first to admit that he doesn't get it right on every occasion. I am hoping he is wrong on this occasion too. I, too, am not keen on aggresive accounting but the management seem to be tackling this issue which will address the cash flow shortage. I think there is upside in this share so I am sticking with it for now.
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