There is good, less good and down right threatening news in today's update from energy technology and supply independent Flowgroup (FLOW:AIM).

On the energy supply business side, the company continues to grow like gang busters, talking up 150% growth in consumer fuel accounts so far this year. According to the company, this puts it on track for £127m of annualised revenues from this part of the business.

But Flowgroup is also conscious of the rising wholesale prices backcloth which will mean rising fuel bills for almost all consumers right across the UK this winter. The company reckons it is hedged effectively enough to carry any extreme cold or warm winter shocks, and the inevitable volatility that will bring to wholesale markets.

aaaElectricity farm

The tone of the smart boilers update is, arguably, less bullish. Amid plenty of chatter about positive feedback about product quality and vast opportunities in social housing, sales cycles are likely to be long and unpredictable. That means any revenues from this stream will likely be lumpy and it sounds like investors should probably factor little if any real revenues into their own expectations for the foreseeable future, with signed sales acting as a positive surpriser.

Lastly, there's Flowgroup's microCHP (combined heat and power) boiler arm, technology more than 10 years in the making but now apparently seriously at risk as UK regulators drag their heals over UK feed-in tariffs. A delayed decision now looks more likely around April next year.

Flow boiler

In short, Flowgroup recognises three main options to pursue.

Sit and wait out a firm decision by the UK Department for Business, Energy and Industrial Strategy (BEIS), cut UK exposure and focus on sales across the rest of the EU, where the company believes the 'financial support' is stronger

> Sell the microCHP business

> Close the microCHP unit down completely, a decision that would almost certainly incur substantial costs and threaten existing revenue and profit forecasts

> 'We will continue to explore the options and report back to shareholders when we are able to recommend a preferred option,' says the statement

'The ongoing uncertainty around our microCHP business is frustrating,' admits Tony Stiff, Flowgroup CEO. 'We are taking positive steps to find a solution that works for our business and for our shareholders.'

Investors should start treating the company as an energy supply independent and nothing else for the foreseeable future. It's certainly a sweet spot right now with thousands of UK consumers switching away from the traditional big six suppliers. The shares have slumped 10% to 10.5p, valuing the company at £33m. Strip out the boiler parts of the business, Tony Stiff anticipates a profitable business in 2017.


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Issue Date: 16 Nov 2016