Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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Other companies of note are Corona Energy, CNG.
These are too big for Yu to acquire but good benchmarks for performance.
The accounts won't tell you GM% you'll need to do your own calculations from data available in accounts.
For a benchmark on pnl margins go online to companies house and download the accounts of BES Utilities and Dual energy - be sure to order subsidiaries as well and this will give you a good indicator of gross margins these companies are making. BES is the top margin performing SME supplier in the market - check historic accounts for proof. will cost you a few quid per company.
I an saying the complete opposite, dual and YU merge.
Both obviously still getting energy from smartest.
But a listed utility provider to SMEs
Sorry think I misunderstood previous post you mean Yu merge with Dual.
This only makes sense to me if all of the overhead in Dual could be removed and migrated to Yu.
Thats an interesting theory Sparky, I think if Yu did get taken over by smartest they would delist from the LSE as Smartest have plenty of backing from Japanese backers and at current valuation would not be a good outcome for shareholders
Also would water down BKs holding which some people are concerned about.
A company of this size would attract more IIs and could pick off minnows just through cash flow alone.
BK and smartest think out of the box this is a match made in heaven
The more I think about this the more interesting
Dual is about the same size as YU turnover in 2019 was 98m and lost 500k a combined entity would have a listed company turning over well over 200m in 2021, and overheads could be dramatically cut in a merger of equals
They both sit under smartest servicing the same market segment and this would give smartest a list company to support and leverage to become a true challenger as critical mass will grow exponentially.
Thoughts ?
Also with regards to the relationship with smartest I wonder if something is afoot on this front and duel energy who have just rebranded, this would be a logical fit
Thinking out of the box
Dual and YU merging with both under smartest the synergies would be a perfect match
Wongtogo, you mention how long for investors to forget the past, I think it has already stated with miton coming back into the fold and taking a 5% stake.
They left pretty sharpish when in kinked off into 2018, they obviously see what you have talked about below and I would be surprised to see that 5% lifted higher as we close in on 2021.
SP Angel are doing a fine job compared to the muppets previously who did nothing and also the new PR team and well respected in the city and also working hard to improve the PR of the company.
When you have people like this onboard enjoy the ride as they are focussed now the foundations have been laid, it is obvious the next target is in YU’s sights either takeover or merger And I think sooner rather than later as 17,000 meter points by year end has not been pick out of thin air it is based already on fact.
That is a serious amount of SMEs to onboard unless the bid/merger targets numbers are known.
Going to be an interesting couple of months as the news could drop at any point.
Also what is management board targets for 2021 , 17,000 to 30,000,40,000, 50,000 ? Who knows but 2 years in purgatory and we are now about to be unleashed.
Bigbitenow you have pretty much summed it up for the way the company STANDS at this time. The company was built on sand to begin with and the CEO said there was plenty of cement in that sand and everybody believed him and hence he took there money at £10 a share and started to replace the sand with cement.
the 3rd party agents had for more than a while sold them contracts that were best flushed down the toilet but it made them money, the agents that is. YU. books looked good at just the right time . Now you would find it hard to find a company that is more solid than this, with the top table in place with well respected careers and auditors and so on. Not forgetting the driven major shareholder here now rained in and them contracts nearly flushed away and the sand turned to reinforced concrete. All this was done for next to nothing from YU. just the ii and a few hundred pis investors money and a CEO who may not be that daft. FCA have not issued fines or anything as far as i can see but probably insured the board was made up of let's say straighter suits, and best company processes to the extent that YU. energy is a textbook company to such a degree that ofgem approved the take over of bristol energy may of even had a hand in it . I don't know about you but you MUST take your hat off to this guy and he's greedy for more, and I probably would say he will get it and I wouldn't want to be in his way. That 55% shareholding was worth at one point 200mil on paper and that's where I see this in 2/3/ years. He won't stop till he achieves what he set out to do 4 years ago. All in my honest opinion of course but it's all there in the paper work. PS I wonder how long it will take for the market to forget the past and let this see some real value for the very LTH.
Error. They are sitting at just 0.29% of that market, which only goes to support my point further.
I also look forward to witnessing the indicated uplift to c. 17,000 meters by YE, which itself is another clear tell for me, given it increases total meters by 23% in just c. 4.5 months.
@ontheupupup Thank you for coming back to me. I appreciate where you are coming from and you have certainly given me food for thought and I will look to spend some time on this angle now.
I will say this though, these churn rates have been in play right throughout the company reset and yet they have managed to increase revenues from £80m in FY18 to £112m in FY19.
As far as I can see, FY20 was never about driving substantial additional growth but building up business systems, strengthening the sales arm and driving through the remainder of the low margin contracts.
Now this is complete, I can see a solid FY20 outcome (Covid aside) and much cleaner and progressive 2021 backed by a sales team expansion, that has never been fully unleashed until essentially now.
As the interims state, "the first two months of Q3 bookings have been the strongest to date," which given in H2 2018 they managed to average £8.6m, says there is real strength there.
I remain convinced by the foundations YU now finds itself stood upon and for me the green shoots are abundantly clear, despite this churn question and I see no evidence that YU cannot counter any losses from this churn.
After all they have a £35BN sized market to go at and profitability (my first goal here), would come at a tiny fraction of that, given they are sitting at just c. 2.9% of that market to date.
However, the icing on the cake here for me is acquisitions and that could well push things on a lot more quickly.
Lets see what January brings, in the meantime, as things stand, i will add on any weakness.
Big bite, I'm sorry you can't swipe to a side churn by having a good customer service ethos and relying on Trustpilot scores (which by the way are able to be manipulated) although I'm sure Yu show all reviews.
The commercial utility market is driven in toto by price - I challenge you to ring a 100 SMES and tell them we'll charge you more but give you a better service and see how many switch.
Let me give you an example of how important churn is - a monthly customer churn rate of just 1.5% means an annual loss of 18% of the base so what that means is every year if Yu didn't add any new customers revenue would decline by roughly 18%.
So if T/O was £100M the loss in revenue for the next year will be £18M which means to generate the growth your talking about not only does Yu need to replace the revenue lost to churn but also needs to add net new customers to meet the revenue targets you think are achievable.
The best Utility company's report churn, average revenue per customer and a whole raft of other metrics which Yu don't report on. Check out the annual report or 6 monthly report of TelecomPlus plc (TEP) to see the metrics they report and how Yu could improve its reporting. This would save us having to factor estimates on churn into calculations.
@ontheupupup. Thank you for engaging on this, its appreciated.
You make a good point about customer churn rates but I do feel this is countered somewhat by YU's whole ethos of customer service, the 4.5 trust pilot score and such things as their 3 ring pick up commitment. YU's whole approach is to be better at customer service than their competition.
Also, its surely difficult to define customer retention, when their goal is to shift a high proportion of low margin contracts off the books. A move that would likely drive higher customer churn and present a warped picture. That does not excuse not providing guidance.
Whilst none of the above is easily measurable, it is for me nevertheless, factors that alleviate many of concerns on this matter.
In terms of making big assumptions, based on previous years, my assumptions are calculated ones and employed against a year, when there was a deliberate managed deceleration in bookings, as the business expanded its sales team and focused on fewer higher margin bookings, whilst eliminating future low margin contracts.
Jump forward a year and now the effects from that are behind them and a bigger sales team is making its mark. So for me the figs. I have used are as I said, conservative but you are entitled to differ in your opinion.
It should also be noted that I was concentrating on your point that revenues ;
"Will reduce further in 2021 (contracted revenue for 2021 stands at £71M - unlikely this gets back to 2019 levels in 2021. (given Bristol Energy represents around £16M of annualised revenue for 2021 my earlier analysis showing that revenue was reducing fast proved to correct - contracted revenue would have been around £56M for 2021)."
For a start, Bristol Energy revenues are expected to be £10m over a 16 month period to Dec 2021, so £7.5m in 2021, not £16M as you have stated. So contracted revenue would have been £65m (actual fig. is . £71.7m).
Secondly, the business is the sum of all its parts and the acquisition is part of that, so contracted revenue is what it says it is and will clearly be added to by further M&A. A big positive because it shows intent and financial stability to do so. YU is the hunter and not the hunted, for now.
Your point about Covid is in line with my own thoughts but my investment is designed to reap the rewards prior to the event, as opposed to reacting to it. There may be risks to overcome but the important thing is YU is stable and will add to its portfolio of meters and that means an even stronger base, post Covid.
Bigbite - thats a nice analysis but the one thing you don't factor in is customer churn rate which is never reported on by Yu and this is a fundamental KPI which should be reported on by a Utility business.
There are also some big assumptions your making that the uplift on previous years revenue will be at similar levels in future years.
If Covid weren't in play I might agree with you however I will err on the side of caution given the current macro economic climate.
I am pleased however with the guidance given by the board for 2021 re B/E and really hope that they see the potential to acquire smaller suppliers as the core way to grow the business.
No brokers = no commission = more margin for Yu. Thats the way to go.
All good here thanks Sparky, hope you are too!
BK's tone is positive and upbeat which is how a CEO should be.
As for acquisitions I think this really is their best bet for growing the business at scale, I would start off with smaller SME suppliers of which there are around 40 to go at. If they target small suppliers with 1-3000 meters this would be a good start.
As I said earlier if they can convince a bank to give them an acquisitions war chest then Yu could act as a consolidator in the marketplace.
@Ammu123
I couldn't cover everything without it becoming too much detail but I did indicate towards this when i said "there are some costs to be re-added to the system," be it a tad wooly.
As the below link details, on 24th Sept the UK Gov now allows businesses to make "smaller payments up to the end of March 2022, interest free."
What this essentially means is that payments can be split over 11 equal payments, starting April 2021.
So YU have the option to extend payments over a c. 18 month period, giving them time to further expand business revenues throughout 2021/22 and thus lower any impact.
https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19
What about the VAT payment that’s been deferred?
Won’t that have an impact next year ?
Apologies 2 clear confusing errors in my posts.
1. "If 2021 can beat 2021, which Covid influences aside, I believe it comfortably will, then the knowledge that low margin legacy contracts fall from c. £35m in FY20 to c. £5m in FY21."
Should read "can beat 2019"
2. We are talking H1 c. 9,800 meters at 35% revenue with "a sharp shock during the lockdown period, via a c35% instant drop in customer demand" vs start of FY21 at c. 17,000 meters and stronger margin contracts.
Should read "We are talking H1 c. 9,800 meters, which included "a sharp shock. . .
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As for the overhead, that has indeed remained "broadly aligned to FY 2019 despite the reduction in revenues" but as YU says, it was achieved against just £46m in revenues, so £92m at FY, compared to 2019, which achieved £112m.
So £20m less in revenues plus further investment in "sales and marketing to drive growth" but overhead remained steady. That's clear progress in my view and will be further helped by revenues increasing and the removal of those legacy contracts, as most costs are now fixed.
The same goes for gross margins, which will naturally gain a lift from the removal of legacy contracts, the addition of "mid-single digit percentage" margins from the £7.5m of revenues to be booked from Bristol Energy in FY21 (£10m across the 16 months ended 31 December 2021) and ever increasing revenues.
Its simply not fair to judge the 2.2% margin on H1 2020 because it was an extraordinary event with revenues well below those that can be expected in 2021.
We are talking H1 c. 9,800 meters at 35% revenue with "a sharp shock during the lockdown period, via a c35% instant drop in customer demand" vs start of FY21 at c. 17,000 meters and stronger margin contracts.
However, I do expect that there are some costs to be re-added to the system, which were deferred but the expanding revenues, already stated as being well within grasp, should more than cover that.
It is absolutely correct that the BOD are forecasting break even at EBITDA for FY2021 but that is without any further acquisitions and it is clearly designed to be cautious because new restrictions are in play in the UK and so forecasts must naturally remain subdued but it Covid restrictions remain manageable, which I believe they have every chance of, given how another full lockdown would affect many businesses, then I think FY2021 will be far more successful than is currently indicated.
In addition, it should be forgotten that UK Gov is supporting a great many UK businesses through interest loans with lengthy no payment periods. These measures have recently been extended and I expect that to continue, so long as small businesses remain under strain. This supports a healthy level of payments being maintained across YU's customer base.
Finally, given YU's approach to customer service, demonstrated though the introduction of their Assist and Agile plan, I actually believe YU can prosper through these uncertain times, as more customers shop around and look to manage their cost base better. It wouldn't take a great deal of drive through to FY2021, for YU to completely remove the adverse affects of Covid on the business.
However, even without that added bonus, it looks to me that YU is now on a much stronger footing and the growth promises reflected in the valuation throughout late 2017/18, can now start to be realised, whatever this Winter throws at us all.
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Morning all,
@ontheupupup For the purpose of healthy debate, I would if I may challenge a number of your figs and conclusions.
1. Firstly, 2019 revenues were £112m, not £120m as you have stated.
2. Contracted revenues for FY21, as of 31st August 2020, stand at £71.7m.
If we look back at the same stage in 2019, we see that contracted revenues for FY20, stood at £65m on 31st Aug 2019. By 28th Jan 2020, these had increased to £79.5m (22% increase). However, this was against average H2 2019 monthly bookings of just £5.1m, where as H1 2020 monthly bookings are already at £6.2m and the CEO has reported (30th Sept RNS) that "the Board anticipates H2 2020 average monthly bookings to be significantly above the £6.2m achieved in H1 2020."
Therefore, this should translate into a greater uplift in FY21. However, even if they only match the same 22% increase, we are talking FY21 contracted revenue of c. £87.5m by end of Jan 2021.
Note - This is of course prior to any affects of Covid restrictions, which won't be known about until 2021 starts to unfold.
To place that all in context of what can/should be achieved in 2021, we need only look at what was booked by end of Jan 2019.
There we see that as of 30th Jan 2019, YU had "in excess of £85 million of revenue contracted for FY 2019" and went on to deliver £112m in FY revenues that year, whilst averaging £4.2m in monthly bookings throughout 2019. So c. 32% further uplift over the course of the year.
The same result in 2021, would deliver FY revenues of £115.5m and would beat the 2019 result.
However, that's without adhering to the message that H2 2020 monthly bookings are significantly above H1 2020, which themselves are 50% higher than those achieved in 2019.
The message in yesterday's update was clear, "Strong monthly bookings in July and August with significant acceleration anticipated during H2 2020."
If 2021 can beat 2021, which Covid influences aside, I believe it comfortably will, then the knowledge that low margin legacy contracts fall from c. £35m in FY20 to c. £5m in FY21.
Even with £35m of low margin contracts on the books this year, H1 20 would have delivered an almost break even EBITDA, if it weren't for the £1.6m in lost EBITDA due to Covid and it would have been achieved on c. £54m (H1 £45.9m + "£8.0m impact on H1 2020 revenue has occurred due to the reduction in customer demand for energy due to the COVID-19 lockdown" See financial review 30th Sept RNS).
So in simplistic terms c. £110m in 2020, gets us around about break even at EBITDA level, against the above conservative £115m for FY2021, which should be (Covid aside) beaten, will have next to no legacy contracts and will highly likely include at least one acquisition.
Hi ontheupupup,
I hope you are keeping well during these extraordinary times.
Thanks for your take on the positives and negatives, we have debated the gross and net margin as some length around the AGM time and I totally agreed and this is the end game, but we must factor in the H1 2020 impact on customer usage which caused the reduced revenue.
Not many businesses will come out of H1 unscathed and with. 35% reduction in Usage during the lock down I think YU actually did pretty well considering and with 99.5% cash collection implies the customers on the books are strong.
So we can all look at the headline doom side OMG revenue down , well hello this was actually utter carnage globally for several months.
Other than that nice post , business failures is a risk to everyone but also opportunity to gain market share , survival of the fittest as like all recessions the ones that come out the other side do very well indeed.
What are your thoughts on BKs tone on more consolidation as he is very clear YU look to be doing another Bristol energy very soon. If so any thoughts on who ? Maybe a merger ?
My take:
Negatives:
- Revenue down for 2020, 2019 was £120M.
- Will reduce further in 2021 (contracted revenue for 2021 stands at £71M - unlikely this gets back to 2019 levels in 2021. (given Bristol Energy represents around £16M of annualised revenue for 2021 my earlier analysis showing that revenue was reducing fast proved to correct - contracted revenue would have been around £56M for 2021).
- Overheads at 6.3% are still too high.
- Gross margins are still too low despite the almost complete wash through of loss making contracts.
- Board forecasts breakeven at best for 2021 - someone forecast 2-3M profit on this board ;-) take them rose tinted glasses off mate!
- Deferrals of taxes, I don't see the point - no interest to be made on this.
-The number of business failures will increase due to lockdown measures.
-The revenue from BE acquisition seems to reduced quickly over 12 months.
Positives:
- The need to make a 7- 10% margin to make a good net profit (nothing new), this is possible - BES Utilities achieve this on commercial gas and power.
-Bookings growth speeding up.
- 99.5% cash collection is excellent.
-online automation.
-if Yu can approach bank for financing facility to fund acquisitions this is the way Yu should focus on growing.
Summary:
Its going to take longer than expected for a potential turnaround here.
Faster switching means customers can leave suppliers more quickly, hopefully YU can take advantage of Ofgems faster switching initiative.
Looking at another £1-1.5M loss for H2 2020.
Directors cannot with inside knowledge, BK was very clear another Bristol Energy deal is very close IMO therefore directors cannot buy
Interesting? no director buys as yet with this news you would of thought that would be nailed on .
Leads me to think is there more news in the pipeline we could sure do with it to get a bit more confidence back here with the LTH who would be looking to average down now the path is more visible.