Investment: Independent Energy plans pounds 200m listing
Wednesday 03 February 1999
The news came as the group announced its first interim profit and hinted at plans to buy a gas company to take advantage of deregulation in the gas and electricity market.
The managing director John Sulley yesterday said that the move from the junior Alternative Investment Market, to be finalised in June, would give Independent "access" to a "wider portfolio" of investors. At present, almost 80 per cent of the electricity company's shareholders come from the US, where the group has a secondary listing on Nasdaq, the market for fast-growing companies.
Despite a six-fold increase in the share price since the 1996 float, many UK institutions have been prevented from buying Independent shares because it is quoted on AIM, he said. His comments came as Independent reported a pounds 707,000 pretax profit in the first six months of the year against a pounds 464,000 loss in 1997.
The Solihull-based company, which specialises in supplying electricity to business users, benefited from a sharp rise in the number of customers during the period.
As the electricity supply market was opened up to competition, Independent gained customers in areas dominated by Regional Electricity Companies (Recs).
The company has secured contracts worth pounds 400m and has 40,000 small businesses and 2,500 larger customers on its books. However, City analysts believe that the test of Independent's success will be in the race for domestic consumers.
The domestic market is being deregulated and should be free by June. Independent already has some 6,000 domestic accounts and is aiming to reach the 400,000 mark over the next few years. It plans to bolster its presence among domestic users by buying a gas supplier and marketing a "dual fuel offer". Mr Sulley said the company wanted to spend around pounds 10m.
However, the success of Independent's foray in the domestic market will depend on whether its lower cost base will enable it to slash prices below the levels charged by Recs.
Unlike its rivals, Independent has managed to keep a tight grip on fixed costs by outsourcing its customer billing and service operations to Vertex, a unit of United Utilities. Independent has paid pounds 3m upfront and will give Vertex an additional pounds 15 per customer, well below the pounds 50-80m paid by some Recs to set up the complex IT systems needed to cope with the deregulated market.
The company's ability to generate around 10 per cent of its own electricity, rather than buying it all on the market, also helps to boost margins.
These two factors should lead to lower prices, although some analysts remain sceptical on Independent's chances of penetrating the Recs' fiefdoms.
The stock underlined this uncertainty yesterday, down 35p to close at 702.5p. They are now on 35 times this year's earnings - forecast at pounds 7m. Given the uncertainties over deregulation and the recent heady run, there is better short-term value elsewhere.
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