The Big 6 energy providers are caught between a rock and a hard place. On the one hand they are being criticised by politicians for not cutting tariffs enough, but on the other profits from their power generation arms are being decimated by crippling wholesale prices. Worse still the situation is being exacerbated by all the negative media coverage, leading to their supposedly loyal customers now walking away in droves.
Take British Gas, the UK’s largest supplier. It announced a fortnight ago that it had lost 224k accounts in the first 3 months of 2016 alone – more than in the whole of 2015. Further out, some industry pundits even predict are that as many as 10m households could switch to rivals by 2020.
So where are all these clients going? Well this morning we learnt that many are ending up at Flow Energy (FE), who on-boarded a net 70k in Q1’16, plus another 10k in April. Thus lifting its total customer base to 180k (+80%) from 100k 4 months’ ago - helped by enhanced brand awareness, customer service commendations from the likes of ‘Which magazine’, and the release of attractive consumer packages.
Given this jump is net additions, we now believe the division will close 2016 and 2017 on 275k (vs 200k before) and 400k (vs 300k) accounts respectively. What’s more, despite incurring acquisition costs of circa £25/client on much higher volumes, the group’s net cash balance (vs £16.6m in Dec’15) is still forecast to exit Dec’16 at £7m (or £9.2m gross). This reflects the fact that the majority of its customers settle their bills via direct debit, or in other words much earlier than FE has to pay for the power consumed.