Energy broker Utilitywise (UTW:AIM) slumps 37.6% to 68p after revealing it will have to repay £7.6m worth of commission payments to an energy company.

It says several clients for whom it secured new energy deals are consuming far less than expected.

Utilitywise gets commission from utility companies for finding new customers; its fee is based on forecast energy consumption.

The company has long been criticised for its aggressive accounting techniques. This involves booking revenue for commission payments despite the cash often not actually arriving in its bank account for several years.


We’ve documented the problems with Utilitywise on numerous occasions in Shares. A selection of articles can be found here:

INVESTORS HAVE GOT IT WRONG WITH THESE TWO STOCKS

JURY IS OUT ON UTILITYWISE

UTILITYWISE’S AGGRESSIVE ACCOUNTING


Utility companies decide when they will pay commission to energy brokers, depending on the quality of companies.

For example, a similar business on the stock market is Inspired Energy (INSE:AIM). Most of its customers are large businesses, so these are considerable more valuable to utility firms and thus it gets paid commission cash within a year.

As for Utilitywise, it is dominant in small businesses which are considered less valuable to utility companies - thus it often has to wait two or more years to get payment.

The company today says it will fund the commission refund from operating cash flow and available banking facilities. It believes there is a low risk of similar issues arising with other energy suppliers.

‘90% of contracts are based on historic data,’ says FinnCap analyst Guy Hewett. ‘However, one large customer has had a significantly higher level of contracts without historic data and believes that its contract values have been overestimated.’

Hewett has reduced his price target for the shares from 222p to 150p.

‘We have been working hard in terms of preparing Utilitywise for its next phase of growth,’ says chief executive Brendan Flattery.

‘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.’

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 29 Jun 2017