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Intrivestor - You've managed to get the same typical response from freeled that I got before Christmas. How you can have any rational discussion of business performance with his condescending 'you know nothing' type comments is beyond me. Freeled - The point of a discussion board is to share views and comments to try to get a better collective understanding of the underlying performance of a business. Your relentless attacking of anyone who dare say anything other than 'the company is wonderful' prevents contributors posting what they really think, or indeed posting at all. What do you, yourself, get out of the board? If you put all your effort into suppressing other peoples' views then surely you're not gaining any new insights from hanging around here?
It has been said from time to time that UW/TP has developed into something of a cult like organisation. Amongst the converted belief is total and their modus operandi is to attack non-believers at any and every opportunity as if they are the enemy to be eradicated. I can see that there is possibly some basis to these comments.
That sums up the way distributors act in relation to this share! 'Don't dare say a critical word about the company or we'll throw our toys out of the pram' You may, or may not, remember Martyn Lewis being driven to distraction on the MoneySavingExpert forum because of the same behaviour around discussions about TP. To get to your point above, TP/UW is NOT a utility. Feel free to pay 24 times earnings, that's your choice. I wouldn't for the following reasons: 1. That kind of rating assumes a lot of future growth. Where is that going to come from when most indicators show the company running out of steam? 2. In terms of asset backing there is probably not much more than £2/share in a liquidation event. Unlike other companies that create significant value in their customer database, the UW customer base has been made progressively less attractive to a potential buyer by all the bundling of services. Why would an energy company want to buy a multi service database when they could buy a purely energy database elsewhere for instance. TP has been/is a fascinating company, not least because of the psychological effects on various groupings.
It is to be hoped there are record profits otherwise the SP will be savaged. To buy a share in TP at the moment you are paying a price that assumes oprating at current levels of profitability until 2040. All businesses have life cycles where typically they have a growth phase, a mature phase and then a descent phase. This company is showing all the characteristics of an entity which could skip the mature phase altogether and transition from growth to decline in pretty rapid order. In such circumstances, paying 24 years worth of current earnings to buy a share seems overly optimistic.
Freeled - low acquisition costs are great! As is some kind of motivated sales force to generate sales.
Freeled - You're completely wrong I'm afraid. I've seen plenty of Mr Smith's posts and, considering his ridiculous verbosity it wouldn't take too much analysis of phrases and language to know that couldn't be correct. But why do you want to make out that anyone who doesn't spout glowing praise for the company is some kind of loony? You do realise that this share is unique in that regard, don't you? Discussions about other shares are exactly that...discussions! Good or bad, surely investors continually look at company performance from all angles? Don't they? Intrivestor - I think you're right. The trouble is that share cheerleaders can be dangerous. How many times do companies 'suddenly' go to the wall and screams are heard of 'never saw that coming'. The signs are usually there....
That's all very true Freeled. My main point is that when you look at the figures holistically there are warning signs in several directions that should make an investor concerned. 1. The vast majority of distributors become disillusioned sooner or later when they realise that, for them, the time requirement Isn't justified by the potential income. After signing up their 'inner circle' they hit the buffers and have nowhere to go, hence why the average number of customers/distributors has stayed around that 10-11 mark for years. 2. Of course there aren't 50,000 active distributors but there are 50,000 people who either have been distributors at some point. That is 1% of the adult population, the vast majority that have actually lost money, and time, through their UW activity. It has got to get harder to recruit new people when most people will know someone or know someone who knows someone who has been an unsuccessful distributor. 3. Despite charging high prices and paying out low commissions TP profit before tax is 7% of turnover. Considering that their energy prices are 35-40% higher than some competitors it is clear why they are unable to be competitive, a 7% cut in prices across the board and there is no profit.....and yet the prices would still be very uncompetitive. So something is very inefficient about the business model or the wholesale prices paid are way too high. 4. Although the year on year turnover and profit graphs look healthy with year on year growth the inescapable fact is that a big chunk of that growth has come from continually adding extra services. How long can new services be found to cross sell to the database? Water has been mooted, TV has been mooted - but the more that this continues the further distant you get from a company that was a master of one trade (telephony) to a jack of all trades not being particularly good at any of them. 5. The idea of all services being on one bill and supplied by one company is probably the closest thing to a USP but unfortunately that USP scares the proverbial out of most householders - to think that a dispute over one service could lead to a suspension of all services is not a pleasant thought and this is with UW having a reputation for being ruthless with their haste at suspending services. As an investor these are the kind of headwinds/trends that don't look pretty. There are plenty posts that tell potential investors that the shares are undervalued and the company is going to be huge but they are often lacking in detail of why this is the case.
They're actually maximum figures intrivestor as the figures used are 'distribution costs including commissions to partners' (partners being the new way of referring to distributors). The figures include marketing spend by the company, which although not large, will reduce the commission figures to some extent. The whole thing continues because distributors are told not to quote actual earnings as it is illegal to suggest high earnings are easily achievable or some legalistic phrase that amounts to the same thing.
All sounds good! However, this is a share discussion forum and some salient ballpark figures for a potential investor would be: Based on last full year's figure - Total commission paid to distributors <3% sales value. Avge commission per customer approx £30 pa Avge customers per distributor 11 Avge commission per distributor £330 pa (gross) So there is a situation here where a company is paying incredibly low sales commissions while charging very high prices to customers. How sustainable is this? Suppose 90% of distributors are completely inactive and earn nothing - that leaves approx. £3,300 pa gross for the 'active' 10%. Suppose 99% of distributors are completely inactive and earn nothing - that leaves approx. £33,000 pa gross for the elite 1%. But remember that these figures are gross, there's a whole host of costs to come off these figures to acquire customers. And each distributir has to oay a further £36 pa just to maintain their position. The whole model is built on persuading others that if they work hard then big rewards are available with the implicit suggestion that those that don't persist are shirkers and just not willing to do the legwork. I wonder how many distributors mention the above figures (or similar) when trying to recruit new people. How many distributors are even aware of those ballpark figure to quote them? They are easily acquired and in the public domain.
Touched a sore point? Discuss the points, pull them apart using logic and evidence to your heart's content. Share discussion forums are about putting forward points of view that help readers to make a balanced decision on whether to invest or not, they are not a cheerleading forum akin to the company's own ra-ra-ra Express Days. Because there are tens of thousands of distributors they tend to swamp arguments and treat anyone not toeing the 100% positive line as enemies to be attacked. Give an opposing point of view, feel free!
Freeled - for the last few years there has been thousands upon thousands of posts on forums from distributors who refuse to see facts and resort to the repeating of generic dismissive statements (percolated through the network from their uplines) and usually accompanied by sarcastic or abusive sideshots at anyone who dares to question the UW offerings. Distributors spend so much time pretending that they are successful and making huge monthly incomes that they actually start to believe their own publicity - except it is jam tomorrow with tomorrow never arriving. As a distributor myself since 1999 I can assure you that the company doesn't make sense in the modern world. In the early days there was a unique offering with a compelling attraction, in fact so much so that it was a 'no brainer'. Now, however, UW doesn't do anything particularly well compared to the competition and is unquestionably expensive. It is very amusing that a response to being expensive is for distributors to take the stance of labelling anyone who can see the facts as a lower life cheapskate. More to the point, the company has managed to create a stream of profitability until now by stringing distributors along with the lure of great riches from residual earnings - but the truth is that if all the initial and residual earnings from a customer were lumped together in one lump sum payment at the beginning it would represent a very measly sales commission......and you have to wait years to get it. People that make what might be termed a living from being a UW distributor are less than 0.1%. Of course it is marketed as a P/T opportunity but the offering is so complex and ever changing that it is nigh on impossible for a part timer to understand it all .....they just keep stumping up more money to buy up to date marketing materials at a great mark up for the company. From a company point of view there is a limited supply of mugs that will keep falling for this nonesense (Charles Wigoder knows this as I've had the discussion with him).
It is interesting to see posts on a regular basis from distributors who would have you believe that somehow UW is a force for good against the big boys of the energy industry. There is no way of avoiding that they are expensive. As a comparison, dual fuel in Yorkshire area: UW - Gas TCR 4.61p + vat = 4.84p, Elec TCR 15.80p + vat = 16.59p Flow Energy - Gas TCR 3.24p (incl vat), Elec TCR 12.96p (incl vat) In a nutshell, UW are more expensive by an enormous margin: Gas +49.38% Elec +28.01% I'm sure that responses will say that the difference can be reduced by purchasing x, y and z services as well but not by much and, in any case, confusion marketing is a big turnoff for customers. In the early days UW/TP used confusion marketing of competitors to illustrate how straightforward their offering was. In 2016 they have become the worst of the worst at such practices in an effort to obscure their horribly uncompetitive prices. Profit can only go in one direction, the same direction as a lot of ex customers I know - out of the door!
Anyone buying in now must be very brave. 'Anything that goes down must bounce back up' is not a good reason to buy this share now. The major warning signs were in yesterday's RNS. They couldn't make Solar work and yet they have been trading through a boom time for solar and should be going into overdrive for the next 4 months as other solar companies are doing. More to the point, the contacts within two solar companies (at either end of the market) I spoke to yesterday have already got their profitable future plans worked out beyond January. But the most startling thing for me is that the marketing approach of solar is almost identical to boilers. So how are they getting on with boiler sales? If this section was going well then why not transfer the same successful methods to solar? The likely answer is that they are struggling against competition in boiler sales too if there is no coherent route to market. Then there is insulation - a rapidly contracting retrofit market and a pretty impenetrable new build market, so limited chance of any good news on the growth front here. The more you dig the more you find evidence of a company that has outgrown it's comfortable size and is now preoccupied with fighting ever more serious fires. Shareholder value could disintegrate very rapidly here but of course DYOR.
I think the main issue is that solar PV was factored in as the big growth area for the future and it is now likely to be dead in the water. Most of the other business activity is in mature, highly competitive areas that don't offer much at all in the way of growth except by way if acquisition, which is why they keep highliting takeovers as being in their sights. After speaking to one of their ex senior sales managers a couple of weeks ago it would appear they are in disarray internally primarily because of power struggles between the different workforces being brought together after acquisitions. This is not unusual of course but can be cancerous, and potentially fatal, to a growing business. This could be overlooked to some extent if they had a compelling USP but it is difficult to see what that might be. I sokd at 115p to keep a watching brief and the situation has got significantly less optimistic since then...
With the general consensus expecting that the mooted 50% cut in FITs was just Govt scaremongering to get the market ready to accept say a 25% cut the actual news today is nothing short of carastrophic for the domestic solar market. An 87% cut and much earlier than usual expected is now predicted to decimate the industry with a 95% fall in installations and around 16,000 job losses and many businesses going under This is another big hit to Entu and being involved in this industry there is a general feeling of resignation today that the case for solar just won't add up after Jan 1.
Having been involved with TEP since 1999 it has never ceased to puzzle me how evangelical distributors get about the share performance. At the end of the day, it is a bog standard company with a bit of an odd route to market, that's it. To date, it has done what it does well within the confines of the marketing model and the revenue is fairly solud for the time being due to a) Customer Inertia and b) The messiness of changing multiple services. However, no logical analysis of this company can justify paying 20 year's worth of earnings to buy a share, which is where it is currently sitting. For a multiple like that you need a high growth company with an exciting USP and something to shout about. What does TEP have? a) Growth which is quickly running out of steam. Bear in mind that growth to date has been largely fuelled by adding additional services. This can only go on for so long and has the effect of making the company more complex to keep under control anyway. b) Exciting USP - Well, there simply isn't one. c) Something to shout about? Again, what exactly does TEP do that you can't get for less elsewhere? I suspect the SP is only where it is because it is overpaying dividends to keep the yield unsustainably high. If you were in Charles Wigoder's shoes right now wouldn't you want to cash in your lot with the SP near £12/share? This problem from his point of view is that he can't and there is no prospect of TEP becoming a takeover target either with the network marketing being the DNA of the company. The company has a value but it is nearer 10x earnings than 20x, £6 is the benchmark.
This is a share that should be about as predictable as they get. As a REIT they are obliged to distribute 90% of rental profits as dividends (which they have recently opted to change to quarterly). Give or take this should be a consistent 6% index linked yield. On top of this a 7% pa capital gain is targeted and achievable through uplifts in asset valuations and high margins on development activities, which can account for up to 20% of asset values at any one time. Because of the nature of the income stream and stability of the business model this to me is an ideal share to trade on margin. With 3% holding costs and a 13% or so return there are some very attractive pitential returns here.
So that is that - Green Deal and GDHIF are consigned to history. It will now be interesting to see how severe the cuts to solar PV FITs are when they're announced. It is difficult to quantify the effect of this on Entu as it depends more on how much their future plans were shaped around Green Deal rather than how much subsidy they currently receive. But at least there is a level playing field and this removes one hell of a lot of needless beaurocracy. I suppose the main problem here is that there may be a perception created by this Govt move that energy efficiency really isn't that important after all.
The more I read the report the more vague it seems which gives the impression of clutching at straws. This could well be a case of venturing into more diverse areas that the management know less and less about. The group as a whole should remain profitable but I can see EPS of 5p per share for the full year being realistic for the next full financial year and if that does happen it will be a struggle to maintain a SP north of 50p. Anyone reading this in a more positive light?
That report gives no reason to buy back in from my point of view. The shares are now starting to look expensive with more downside risk than upside potential. Eco funding and FIT funding is only going one way as we know so there is likely to be another like-for-like significant fall in profits in the next 12 months. It always worries me when a company has acquisitions mentioned as fairly high up their list of priorities. It usually makes a business more messy and less focussed and, more importantly, in the energy efficiency game there is usually a good reason why a seller is selling - more often than not it is because the acquisition is already a dead duck.