Energy supplier OVO to explore options including sale

Published

2 days ago

June 29, 2024

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Britain’s fourth-biggest household energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.

Sky News has learnt that OVO Group, which was founded by Stephen Fitzpatrick, is close to hiring Rothschild to assist with a strategic review of the business.

City sources said this weekend that a range of possibilities would be considered during the process, which is expected to take several months.

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These are likely to include a refinancing – with talks already underway about OVO’s existing borrowings – as well as issuing new shares to prospective investors, or a partial or full sale by some of the company’s shareholders.

An outright sale of the business is considered by insiders to be unlikely at this point, but is expected to be explored as part of the strategic review.

OVO, which has about four million customers, sits behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of Britain’s leading gas and electricity suppliers, according to market share data provided by Ofgem, the industry regulator.

Under Mr Fitzpatrick, who launched OVO in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.

OVO’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.

Its growth has not been without difficulties, with insiders referring to a challenged relationship with Ofgem and a torrent of customer complaints about overcharging.

In recent months, OVO’s shareholders have reshaped its leadership team, bringing in the former J Sainsbury chief executive Justin King as its chairman.

In May, Mr King recruited David Buttress, the former Just Eat boss who was briefly Boris Johnson’s cost-of-living tsar, as the energy group’s new chief executive.

Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.

He is expected to focus on sharpening the company’s customer service performance as well as exploring ways to further diversify its products and services.

Key to OVO’s valuation will be the growth of its technology platform, Kaluza, which was set up to license its software to other energy suppliers, and provides customers with smart electric vehicle charging and heat pumps.

OVO recently announced that AGL Energy, one of Australia’s biggest energy suppliers, had bought a 20% stake in Kaluza at a $500m valuation.

Kaluza is understood to be exploring further expansion opportunities in Europe, Japan and the US.

OVO has also entered the electric vehicle car charging sector under the brand Charge Anywhere, adding 34,000 public charging points across the UK.

In 2022, OVO Group made an unadjusted loss of £1.3bn, which it blamed on a decline in the value of energy it had bought in advance to meet future supply commitments.

It said this had “no cash impact” in a corporate filing, and that this value would rise as customers used the energy it had bought.

Last summer, the company announced a £200m secondary share sale which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increasing their stakes in the company.

Other investors include Mitsubishi Corporation, the Japanese conglomerate.

Mayfair is thought to hold a stake of over 30%, while Mitsubishi owns approximately 20%.

Mr Fitzpatrick also remains a significant shareholder.

This weekend, it was unclear which of OVO’s investors might seek a disposal of their interests, although insiders acknowledged that a sizeable proportion of the company’s shares could end up changing hands.

Like its rivals, OVO has been contending with the impact of the industry price cap after a period of enormous price spikes which sent customers’ bills soaring.

Last month, Ofgem said the cap would fall in the quarter from July to September by the annualised equivalent of £122, to £1568.

Other big players in the sector include EDF and Scottish Power, which is owned by Spain’s Iberdrola.

In recent months, Octopus Energy, run by Greg Jackson, has crystallised a valuation of over £7bn by selling stakes to a number of new investors.

Centrica has a market valuation on the London Stock Exchange of £7.3bn.

OVO, whose valuation in any major transaction was unclear this weekend, declined to comment.

Business

House prices still unaffordable for the average earner despite wage rises – Nationwide

Published

36 mins ago

July 1, 2024

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House prices still unaffordable for the average earner despite wage rises - Nationwide

Average house prices are still unaffordable for the typical earner, the UK’s largest building society has said.

Despite wages rising above the rate of inflation in recent months and house prices falling from the record high of summer 2022, “housing affordability is still stretched”, Nationwide said.

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A greater proportion of take-home pay is going on mortgage bills, according to the lender’s house price index.

Someone earning the average UK income seeking to buy their first home with a deposit worth 20% of the asking price will have a monthly mortgage bill of 37% of their end pay packet.

It’s above the long-standing average of 30%.

The mortgages affect

While people have been typically earning more and house prices are 3% lower than the all-time high two years ago, rising mortgage costs have made unaffordability worse.

With high interest rates – raised to 5.25% by the Bank of England to bring down inflation – have come more expensive mortgage costs.

According to Nationwide, the interest rate on a five-year fixed-rate deal for a borrower with a 25% deposit was 1.3% in late 2021. That has soared and is now around 4.7%.

Latest official figures showed basic pay grew 6% in the three months to April, while inflation – the rate of price rises – was 2.3% in the same month. But data from living-standards thinktank the Resolution Foundation said weekly wages have increased by just £16 in 14 years when inflation is factored in.

Compounding affordability problems is the fact UK house prices are back on the rise and were 1.5% more last month compared to June 2023.

Fewer mortgages, more cash

There have been fewer house-buying transactions over the past year, Nationwide added.

The total number of transactions is down by roughly 15% compared to the pre-pandemic year of 2019.

Higher borrowing costs have meant transactions involving a mortgage are down even more, nearly 25%.

Cash transactions, however, are up 5% on pre-pandemic levels.

Figures released by the Bank of England on Monday morning showed mortgage approvals continued to fall.

House sales are likely to fall as the number of mortgages approved dropped to 60,000 in May from 60,800 in April.

Would-be buyers borrowed half the amount of money to purchase a home, the Bank said, £1.2bn was loaned in May, down from £2.2bn in April.

The same data showed that personal lending, such as credit card debt and personal loans, grew. It suggests increased consumer demand.

The region with the fastest house price growth was Northern Ireland at 4.1% across the three months of April to June, while it became 1.8% cheaper to buy a house in East Anglia over the year, according to Nationwide figures.

Business

Strikes at Tata’s Port Talbot steelworks called off after change in closure date

Published

2 hours ago

July 1, 2024

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Strikes at Tata's Port Talbot steelworks called off after change in closure date

A planned strike at the Port Talbot steelworks has been suspended after the Unite union said new investment was proposed.

Unite is suspending its industrial action, it said, after the news on Thursday that the Indian conglomerate owner, Tata, would, in response, close the site earlier than first announced.

Talks throughout the weekend yielded a “significant development” in the form of an agreement from Tata to discuss future investment and not just redundancies, the union said

The closure date is now 7 July, the day before the previously planned strike and roughly two months before the September timeline originally announced to close the final blast furnace in which steel is made.

Up to 2,800 jobs are to be lost – 2,500 in the next year, and a further 300 in three years despite a £500m taxpayer cash injection to support the site’s transition to cheaper, greener steel production to cut emissions.

The first steel blast furnace was due to close at the end of June in a push to reduce carbon emissions at what is the UK’s single largest source of CO2.

The previous fossil-fuel-powered blast furnaces are being replaced by a single electric arc furnace.

Union response

It was in protest to job losses, and the effect on the local community, that Unite members were striking.

The early closure decision by Tata was last week described as being the “latest In a long line of threats that won’t deter us” by Unite’s secretary general Sharon Graham.

“The strikes will go on until Tata halts its disastrous plans,” she said on Thursday. An overtime ban had already been in effect from 17 June.

Another union representing Port Talbot steelworkers welcomed Unite’s industrial action pause and the fact it was getting “back around the table with their sister steel unions”.

Tata would resume discussions if the strike was called off, Alun Davies the national officer for Community the steelworkers’ union said.

“The truth is Tata never walked away from those discussions, and at our last meeting on 22 May all unions agreed to conclude the negotiations and put the outcome to our members. Community will welcome resuming those discussions, but we regret that zero progress has been made since 22 May.”

Tata has been contacted for comment.

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Energy price cap falls today but £600 lift to annual bills ahead, report warns

Published

14 hours ago

June 30, 2024

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Energy price cap falls today but £600 lift to annual bills ahead, report warns

As the latest reduction in the energy price cap takes effect, households are being warned of a big lift in bills ahead due to higher wholesale gas prices.

The cap, which limits what suppliers can charge per unit of energy, fell by 7% overnight in the wake of the latest three-month review by industry regulator Ofgem.

The reduction meant that typical 12-month bills will be around £500 cheaper than a year ago.

It left the average bill at £1,568 – a figure that will apply until the result of the next review takes effect in October.

However, a report by the Energy & Climate Intelligence Unit (ECIU) said on Monday that consumers should brace for an additional hit of up to £600 over the coming winter, largely due to higher wholesale prices.

It pointed to a possible £200 price cap hike from October on the back of some analyst calculations, suggesting it was plausible the total could remain around that level until June.

One calculation, by experts at Cornwall Insight and released on Friday, predicted a 10% – or £155 – increase from 1 October to £1,723 a year but said there remained uncertainty on the market path ahead.

Consumer groups say there is an alternative to the price cap, pointing to a growing number of fixed-rate deals on the market following a dearth of competition in recent years.

European wholesale costs are again elevated for the time of year based on pre-energy shock norms.

Recent pressures have included strong competition from Asia, particularly China, for liquefied natural gas (LNG).

That has replaced some of the Russian natural gas volumes that were stripped away in the wake of the invasion of Ukraine in February 2022.

A planned extension of the European Union’s sanctions regime against Russia will see its LNG exports targeted for the first time – potentially placing further pressure on supply across the continent.

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UK household costs for both gas and electricity stood at an average of just below £1,090 ahead of the Russia-Ukraine war.

The ECIU report said: “By September 2025, the average household could have paid an extra £2,600 on energy bills during the ongoing gas crisis.

“With the government also spending £1,400 per home earlier in the crisis, the total extra costs could be £4,000 per home, and counting.”

Energy has been among the big battlegrounds of the election.

Much of the debate has centred on costs but the impact of gas use in particular has fuelled argument too on the UK’s climate commitments.

Dr Simon Cran-McGreehin, head of analysis at ECIU, said: “The UK’s high dependence on gas for electricity generation and heating has cost bill payers £2,000 so far during the gas crisis and the economy as a whole tens of billions of pounds.

“Common sense measures like investing in insulating the poorest homes, switching to electric heat pumps and fast-tracking British renewables will leave us less vulnerable to the whims of the international gas markets.

“North Sea gas output is declining so unless we make the switch we’ll be ever more dependent on foreign imports.

“The maths is clear, when it comes to energy independence, new drilling licences are a side show making a marginal difference compared to the immense quantity of homegrown energy that offshore wind and other renewables can generate.”

Emily Seymour, the editor of Which? Energy, said: “Consumers will be relieved to hear that the price cap is dropping by around £122 for the typical household from 1st July.”

She added: “With the price cap predicted to rise again in October, many consumers will also be wondering whether to fix their energy deal.

“There’s no ‘one size fits all’ approach but the first step is to compare your monthly payments on the price cap to any fixed deals to see what the best option is for you.

“As a rule of thumb, if you want to fix, we’d recommend looking for deals as close to the July price cap as possible, not longer than 12 months and without significant exit fees.”