Utilitywise. Rapid growth. Acquisition of EIC to boost growth. Attractive market opportunities. Valuation: Potential for further upside

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1 Utilitywise Rapid growth Initiation of coverage Industrial support services We expect the market for energy procurement and management services to expand. Utilitywise has a proven track record of delivering growth, a broad service offering and a scalable business that should allow it to capitalise on the market growth in both the SME and the I&C markets. Despite significant share price appreciation since the IPO, we believe the growth potential is not yet fully reflected in the share price. Year end Revenue ( m) PBT* ( m) EPS* (p) DPS (p) P/E (x) Yield (%) 06/ N/A N/A N/A N/A 06/ /13e /14e Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. Acquisition of EIC to boost growth Utilitywise s rapid growth trajectory was confirmed by its recent interim results, which showed EBITDA and PBT at +44% and +50% respectively. The proposed acquisition of EIC will augment the existing strong organic growth profile and is expected to enhance earnings in FY14. In addition, EIC will strengthen Utilitywise s expertise in flexible procurement contracts, considerably enhance its position in the I&C market and complement its existing strength in the small- to medium-sized enterprises (SME) market. Utilitywise s business and IT systems should help to reenergise EIC sales efforts. Attractive market opportunities Many market commentators believe that the recent trend for higher commodity prices is set to continue, and therefore likely to increase the attractiveness of the energy procurement and energy saving services offered by Utilitywise. Third-party intermediaries penetration of the SME energy market remains low, and work conducted by Utilitywise indicates its current market share is less than 1% of the theoretically available market of 2.5m contracts. This low level of market penetration, the fragmented nature of the market and the trend among energy suppliers to reduce the number of intermediaries with whom they have a direct business relationship, provides a significant growth opportunity for Utilitywise. Valuation: Potential for further upside Utilitywise has performed strongly since its IPO last year. However, our research indicates there is potential for further upside both in the medium and longer term. Based on peer group analysis and transaction multiples we believe that 128p/share, c 11.2x FY14 earnings constitutes a sensible medium-term valuation. If Utilitywise is successful in maintaining its growth profile our DCF valuation indicates that the business could be worth considerably more. 25 June 2013 Price 105.0p Market cap 65m Net cash ( m) 8.2 Shares in issue (pre-acquisition) 61.4m Free float (pre share issue) 42% Code Primary exchange Secondary exchange Share price performance UTW AIM N/A % 1m 3m 12m Abs (7.1) Rel (local) (0.0) week high/low 113.0p 61.5p Business description Utilitywise is an independent cost management consultancy offering energy procurement and management products to the business market in the UK. Next events Shareholder meeting 2 July 2013 Acquisition completion 3 July 2013 Full-year results October 2013 Analysts Graeme Moyse +44 (0) Roger Johnston +44 (0) industrials@edisongroup.com Edison profile page Utilitywise is a research client of Edison Investment Research Limited

2 Investment summary Company description: Energy Cost Management Consultancy Utilitywise is an independent cost management consultancy offering energy procurement and management products to the business market in the United Kingdom. The company was founded in 2006 by Geoff Thompson as an energy procurement provider, but since then has grown through a combination of acquisitive and organic growth and has added to the range of services it provides. It now offers energy consumption management tools, including energy audits, consumption monitoring down to a circuit level, energy saving advice and collection and analysis of consumption data. Utilitywise regards its range of energy management services as a key differentiating factor between its own business and those third-party intermediaries (TPIs) that compete solely on price. Valuation: Further upside possible In an attempt to value Utilitywise, we have examined peer group multiples, transaction benchmarks and constructed a DCF. Our research produced a wide range of possible values for the company, but we believe a value of 128p/share is a fair medium-term valuation. If Utilitywise is successful in maintaining its growth profile, the DCF valuation indicates that the business could be worth considerably more in the longer term. Of course, failure to achieve the growth profile that we are currently forecasting, either as a result of alterations to the structure of the market, regulatory changes or a change in the approach of the major energy suppliers, constitutes a risk to our forecasts and valuation. Financials: Strong growth trajectory anticipated We expect Utilitywise to continue its strong growth trajectory in what remains a relatively new and fragmented market. Our forecast projects revenues of 23.8m for 2013 and 35.6m for 2014, based on the proposed acquisition of EIC and Utilitywise increasing the number of energy consultants it employs to an average of 340 for We expect gross profit margins of 45% in , to rise modestly to 48% in As a result of the proposed acquisition we expect net cash to fall to 0.4m for FY13, but recovering thereafter despite our projected dividend growth, with cover maintained at c 3x. Sensitivities: Regulation and competition The market for energy procurement is currently regulated by codes of conduct and is policed by large energy suppliers. Ofgem is not considering a move to full regulation of the market, but is instead developing options for a single code of conduct for third-party intermediaries in order to rectify abuses. A change in Ofgem's stance would constitute a risk for the business. Historically 60% of Utilitywise's revenues were derived from three customers (energy suppliers) with the largest accounting for 24%. However this concentration has been reducing over time and we expect it to decline further in coming years. Nevertheless a change of strategy on the part of a large energy supplier (to go straight to the customer) and increasing competitive pressures from other energy brokers could limit Utilitywise's growth. At present we are not aware of any intention on the part of a supplier to change its strategy for accessing the market, and such a course of action would result in the loss of considerable business to the supplier. Loss of key staff and failure to increase the number of consultants would create a risk. Utilitywise 27 June

3 Company description: Capacity for growth Utilitywise has extended its product offering significantly in recent years and is no longer solely an energy broker offering fixed price contracts to SME customers. Services include everything from a basic Account Care review of energy bills and consumption, to check if the customer is on the correct energy tariff, through to energy audits and the implementation of energy saving measures. Utilitywise s Edd:e remote energy monitoring system is an internet-enabled system showing circuit level usage. The proposed acquisition of EIC will further expand Utilitywise s product suite, enhancing flexible buying expertise and strengthening its position in the I&C market. The range of service offerings and EIC s I&C market position provide Utilitywise with a strong competitive advantage and act as a significant barrier to entry for TPIs seeking to compete with Utilitywise. Growing organically and through acquisitions The UK market for energy procurement services remains extremely fragmented and Utilitywise s strategy is to grow in this market via a combination of organic and acquisitive growth. The number of consultants employed in the business (currently 259) is a major driver of growth and Utilitywise has rapidly increased the number of consultants via an in-house training programme (from 135 to 259 over the last 12 months) and will continue to do so. However, at the time of its admission to AIM Utilitywise stated that it had identified potential acquisition targets and has since announced a number of acquisitions. In October 2012 Utilitywise acquired Clouds Consultancy and in April 2013 it announced the acquisition of Aqua Veritas. Most significantly, Utilitywise recently announced the proposed acquisition of EIC. The acquisition of EIC would provide Utilitywise with enhanced capability in the flexible buying market and extends the range of energy procurement options offered by the group. The deal will effectively complete Utilitywise s offering in the energy procurement market, although the company will continue to develop its range of energy service offerings. The acquisition would also strengthen Utilitywise s position in the I&C market. In a recent Cornwall Energy Market Report (April 2013) EIC ranked joint third in the I&C market compared to Utilitywise s sixth position. The strength of EIC in the I&C market will complement Utilitywise s dominant position in the SME market. Utilitywise also believes that its own IT and industrial process skills will provide EIC with improved sales focus, enabling it to fully exploit its market opportunity. Founding team continues to drive growth The management board is comprised of four executives and three non-executive directors. The executive team is led by the CEO and founder of Utilitywise, Geoff Thompson, and includes the key personnel that have been responsible for driving the impressive growth achieved since The existing directors will see their holding in Utilitywise decline in absolute and relative terms following the enlargement of the share capital to fund the acquisition of EIC and a simultaneous sale of 17.2m shares (23.9% of the enlarged share capital). However, post these transactions the directors will continue to hold 18.9m shares, representing 26.2% of the issued share capital, maintaining a significant stake in the future of the business. Simon Butterfield, CEO of EIC, will hold a further 2.3m shares, or 3.2% of the share capital. Mr Butterfield is subject to a lock-up agreement that will require him to hold all of the shares for at least one year, after which he will be entitled to dispose of 50% of his holding. After two years he is free to sell his shares in their entirety. While driving growth, both organically and through acquisition, management has also shown a commitment to shareholder returns by accelerating the timetable for the payment of dividends, with a 1p payment made in 2012 and a 0.8p payment in H113. In the future Utilitywise plans to pay a dividend that is 3x covered by earnings. Utilitywise 27 June

4 Fragmented market and systems platform provide opportunity Utilitywise was founded in 2006 as an energy procurement service provider for SME businesses. However the company has grown rapidly in recent years and Utilitywise has become increasingly active in the industrial and commercial market, servicing larger clients; a trend that will be reinforced by the proposed acquisition of EIC. We believe that its expanded product offering, strong business process systems and increased number of consultants provide Utilitywise with an excellent platform for further expansion. At the same time, large energy suppliers have been restricting the number of energy brokers with whom they are prepared to transact business, favouring companies such as Utilitywise. A track record of organic growth Exhibit 1 demonstrates the strong organic growth achieved by Utilitywise in and the recent interim results confirmed the continuation of this strong growth trend. H1 revenues rose 44% from 7.1m to 10.2m, while gross profit increased by 33% from 3.2m to 4.3m. PBT fell slightly to 2.1m from 2.5m due to a rise in administration costs. The higher admin costs in turn reflected a substantial increase in the number of energy consultants (from 188 to 259 during the last six months) and higher infrastructure costs, relating in part, to the move to new offices. Both of these developments provide the business with a strong platform for growth and we would expect this to be reflected in a stronger H2. We expect the increase in the number of consultants seen in H1 to deliver significant additional revenue in H2 as their training period comes to an end and they progress along the revenue generation maturity curve. The new offices will allow further scope for expansion (up to 400 consultants) without Utilitywise incurring significant additional costs and the CRM systems provides significant scalability to the business. Exhibit 1: Utilitywise progression of revenues and employees m Number of employees Revenue ( m) - LHS Average Number of Employees - RHS Source: Utilitywise, Edison Investment Research. Note: 2010 is 13 months. Organic growth set to continue Providing visibility of the potential for future growth is the pipeline of secured future revenue, which stood at 10.6m at the end of March, 2.1m higher than the 8.5m figure for the end of January. Based on historical precedent, Utilitywise expect approximately 75% of this revenue to go live in the net six months. Longer term Utilitywise has profiled the consumption and billing of 47,536 meters (31 March 2013) up from 36,919 as at the end of September Based on historical experience c 50% of these sales opportunities might be expected to convert to revenue. Encouragingly the contract renewal rate has also risen, from 53% at the time of the IPO, to 69% as at the end of January. Taken together these metrics provide significant confidence in Utilitywise s ability to meet future growth targets. Utilitywise 27 June

5 Acquisitions reinforce growth trend Complementing its strong organic growth, Utilitywise has pursued a policy of acquisition since its IPO and recently announced the proposed acquisition of EIC. If the proposed transaction is successful, the enlarged group will be one of the largest energy procurement and consultancy firms in the UK. EIC provides risk and portfolio management products with a focus on the I&C market, where it was ranked joint third in a recent independent research report (Utilitywise was sixth). EIC s strength in the I&C market complements Utilitywise s own dominant position in the SME market (first) and its expertise in flexible buying will help speed its development in this area. The acquisition of EIC will also add a range of new procurement products and provide additional resources for existing products. In turn, Utilitywise believe its own industrial process and IT systems will reenergise EIC s sales effort, which has faltered in recent years. Utilitywise will pay 15.5m for EIC s equity and repay an outstanding mortgage debt of 1.94m. The consideration will be satisfied by 10.5m in cash on completion and 5m in shares. In order to fund the cash payment Utilitywise is to place 5m shares, with the remainder funded from existing resources. In total, as part of the deal, it will issue shares worth 10m. The placing is conditional on agreement of the shareholders, which will be sought at a meeting scheduled for 2 July. Based on EIC s management accounts for the year ended 30 April 2013, the consideration represents an EV/EBITDA multiple of 6.7x. Although the multiple is higher than the 3.2x paid for Clouds, EIC is a much bigger business with a stronger market position. Conversely, the multiple is lower than we have seen for some of the larger companies in the sector (above 10x). The acquisition is expected to be earnings enhancing in the first full year of trading (FY14). In October 2012 Utilitywise announced the acquisition of Clouds Environmental Consultancy, adding a team of 12 full-time energy consultants offering a range of complementary products and services, including compliance auditing, carbon management services and specialisms in identifying potential energy and cost savings for its client base. At its recent interim results Utilitywise also announced the acquisition of Aqua Veritas, a supplier of water consultancy services. Aqua Veritas specialises in water utility, helping to reduce its clients water costs and enhance their environmental performance. The acquisition also secures Osiris the intellectual property that has been used to develop Utilitywise s multi-utility reporting platform. In October, Utilitywise also signed a partnership agreement with City Electrical Factors, adding to existing agreements with the Chambers of Commerce and the North East of England Process Industry Cluster (NEPIC). The deal provides Utilitywise with another route to market via CEF s 400-branch network. Under the terms of the agreement a CEF account manager will be able to sell the range of Utilitywise products under the E-vaU8 brand. Utilitywise s product offering and market positioning In addition to growing revenues and profits Utilitywise has also added to the range of services it provides through organic development and acquisition (Clouds, Aqua Veritas and EIC). These additional services provide customers with the opportunity to save energy and reduce bills and often form part of the energy supply contract and are covered by its cost. However, in some cases these services are sold separately from energy supply contracts and provide Utilitywise with an additional source of revenue ( 562k in H113). The company regards the depth of its service offering as an important differentiating factor between itself and those third-party intermediaries that compete solely on price. The table below sets out the additional services offered by Utilitywise. Utilitywise 27 June

6 Exhibit 2: Utilitywise s product and service offering Energy Procurement Account Care Bill Validation Carbon Zero Market Intelligence Portfolio Pricing Portfolio Risk Management Option Monitoring & Control Edd:e Energy Monitor Energy Health Check Smart Meters Utility Insight Energy Reduction Energy Audit Ecofit Financing Energy Manager Carbon Management Airport Accreditation Carbon Footprinting Carbon Management Compliance Air Con. Inspection Climate Change Agmts Display Energy Cert. Energy Perf Cert. EU Emissions Trading Carbon Reduction Commitment Water Services Water Services Water Audit Water Bill Audit Review of energy bills to determine whether the customer is on right meter and energy tariff. Validation of historical and current electricity and gas bills. Purchases carbon credits from The Carbon Neutral Company, which are available to customers to offset emissions. Weekly, monthly and quarterly advice on trading electricity and gas. Commentary on pricing trends. The provision of advice to clients seeking flexible contracts. Risk-managed (pooled) flexible contract for a company that does not qualify for an individual contract. Individual flexible contracts suitable for clients with energy costs of 3-4m pa. Clients pay a premium at the start of the contract to secure an option exercisable during the contract. Internet-enabled remote energy monitoring system shows energy consumption and circuit level view of usage. Developed by Utilitywise with patents pending it allows customers to monitor effectiveness of energy use and highlights anomalous usage. Proprietary software compares the customer's energy use with a database of similar properties. Utilitywise have a number of agreements with meter installers and operators. Web based platform provides reports and analyses data from the customer s gas and electricity smart meter. Source: Utilitywise, Edison Investment Research Energy surveyor recommends physical and behavioural changes to cut consumption. Ecofit team direct the physical implementation of the Energy Audit. Utilitywise have arrangements with organisations that can provide finance for energy saving projects. Utilitywise provide a dedicated outsourced energy manager for companies without in house expertise. Utilitywise provides independent verification of an airport s carbon footprint. Calculation of a business s carbon footprint. On-site surveys and design of a carbon management plan helping businesses to lower their emissions. Utilitywise provides air conditioning inspections and project manages any improvements. Climate change Levy checks and advice on Climate Change Agreements compliance. Utilitywise s energy assessors can provide advisory reports and Display Energy Certificates. Advice and project management skills for improving energy performance. Date collection, report submission and allowance forecasting. Utilitywise can manage a company s CRC training and compliance audit. Site surveys and water quality monitoring. Assessment of usage and recommendation for changes to reduce consumption. Checking service designed to reveal any inaccuracies. The Energy Audit involves a review of the customer s property by an energy surveyor using proprietary software enabling automated reports to be delivered to customers highlighting potential savings. Utilitywise believes that its software enables it to offer a cheaper and a more cost-effective service, allowing it to provide this service to smaller clients whose energy consumption would not normally justify the expense of a conventional service. The automated approach also provides for standardised delivery of report and instant return calculations on investments. Some energy suppliers have asked Utilitywise to conduct energy audits on their behalf. Edd:e is an internet-enabled remote energy monitoring system, allowing circuit level analysis of usage. It is a further piece of proprietary technology (Utilitywise has international patents pending) employed by the company, strengthening its market position. Utilitywise is currently integrating its Edd:e technology with a multi-utility platform that allows customers to monitor gas, water and electricity for anomalous usage, accessing the data real time or in customised reports delivered by Utilitywise. Developing additional services for its customer base continues to be a priority for Utilitywise as evidence by its acquisition of EIC. The process of expanding the offering of flexible contracts to its client base had already begun following the recent recruitment of Michael Dent from Total, but the purchase of EIC will reinforce this process. Utilitywise is also targeting the French and German energy market and has already established teams of consultants to address the opportunities in these markets. The recent acquisition of Aqua Utilitywise 27 June

7 Veritas will enhance its capabilities in the water sector and Utilitywise s voltage optimisation product (reducing consumption by up to 10%) is scheduled for launch later this year. In the longer term Utilitywise will seek to develop expertise in the field of remote control of building energy management systems. Business systems Utilitywise has devoted considerable effort into developing and refining its own CRM systems. The main CRM platform, known as Darwin, has been developed progressively since Darwin allows Utilitywise to plot the customer through the life of the contract, provides for automated customer communication, billing and future commission pipeline management, as well as detailed management information on sales performance. The information management has enabled Utilitywise to achieve go live (conversion of pipeline into sales) rates for contracts of 90%, which it believes to be the best in the industry, and to progressively increase its rate of contract renewals, from 28% in April 2011 to 69% by January The Darwin CRM system is undergoing further development with the Quantum project, which will facilitate the integration of Utilitywise s full suite of products and services. Its prospecting software is built around a database containing the universe of full VAT-registered companies, which as well as providing employer numbers and location, indicates likely energy intensity and consumption. This allows Utilitywise to target customers with appropriate services and contract propositions. The third system, Tesla, is used for the dedicated partner channel team allowing its affiliates (eg CEF) to monitor the progress of the customer through the contracting process and track commission payments. It also allows the affiliate to access energy market information and news. The Eddieson CRM helps the co-ordination of the deployment of Utilitywise s energy range of services. The recent trend of falling revenues and profits at EIC is ascribed to weak sales planning and execution. The systems developed by Utilitywise are viewed as a key component of a strategy designed to reverse this trend. Non-Domestic Energy Supply The UK energy market for non-domestic customers is characterised by a restricted number of active suppliers, with the former incumbent suppliers (British Gas, E.ON, EDF Energy, RWE, ScottishPower, SSE) still dominating the market. In electricity the former incumbent suppliers account for 78% of the half hourly volume, although the market share for these companies is much lower in the gas market where they entered at a later stage and in total they are estimated to hold a market share of 22% for the total non-domestic market. However, the previous market players continue to dominate the market for smaller businesses and they supply 93% of non-half hourly electricity sites and 70% of gas non-daily metered sites. Small businesses also appear less actively engaged in the energy market than the larger corporates. Research carried out by Accent for Ofgem in 2012 suggested that 31% of small and micro businesses had never considered switching their electricity supplier compared to only 15% of larger businesses. The UK energy procurement market Most suppliers choose to access the customer through a combination of direct sales and TPIs with the weighting of the two approaches varying between suppliers. TPIs are incentivised by commission payments made by suppliers for each new contract (commonly two years). Utilitywise recognises revenue when the contract goes live, but raises a provision equivalent to 15% of the value of the contract to cover possible variability in terms of energy consumption or bad debt. With their ability to quickly supply customer energy information and respond rapidly to supplier offers, TPIs represent a low cost method of accessing the market for the supplier. Utilitywise 27 June

8 Small businesses, although keen to exploit the competitive market for lower priced energy deals, find the complexity of the unregulated energy market daunting and value TPIs as an independent counterparty, able to guide them through the market with their specialist knowledge. The market for energy procurement remains fragmented, with an estimated 3,500 active energy brokers, most relatively small players. However, there are a number of larger competitors including Inenco, M&C Energy (now part of Schneider Electric), MakeitCheaper, Utilyx (owned by MITIE), and AIM-listed Inspired Energy. Some of these businesses, like Utilitywise, offer a range of energy services, but none have yet established a dominant market position. As we have already highlighted, a recent report by Cornwall Associates identified Utilitywise as the leader in the SME section of the market and number six in the industrial and commercial segment, where it has been expanding rapidly and will be strengthened by the EIC acquisition. In recent years, the energy suppliers have reduced the number of TPIs with who they are prepared to transact business at the expense of the smaller, less sophisticated TPIs. This trend is expected to continue to the advantage of the larger TPIs, which provide a broader service offering. Market regulation The energy regulator Ofgem recognises the important role played by energy brokers in ensuring that small businesses can access competitive energy deals. It is also aware that mis-selling and pressurised selling techniques by rogue brokers can damage the market and has asked the government for more powers in this area. Ofgem is not minded to move to a fully regulated market, but is working with suppliers and brokers to develop a code of practice for third-party intermediaries. Some critics have also called for full disclosure of commissions, which are currently subsumed within the overall bill, although again we do not believe that this is being considered actively by Ofgem. The inclusion of added services in the energy bill in any case adds a layer of complication to that process. Despite these concerns, a research report prepared for Ofgem by Accent, entitled Quantitative Research into Non Domestic Customer Engagement and Experience of the Energy Market (November 2012) found that respondents to its survey were relatively satisfied with their use of energy brokers, scoring them 3.95 for electricity and 3.83 for gas, out of 5. However, Ofgem is considering banning the automatic rollover of supply contracts for business, which could prove beneficial for Utilitywise in that it could generate greater interest from businesses for competitive supply contracts. Given Utilitywise s current share of its target market (1%), we believe this will act as a stimulus to businesses switching, and will generate opportunities for customer gains rather than pose a threat to existing client bases. Market opportunity Higher commodity prices have led to a significant rise in UK electricity and gas prices over the past 10 years and a number of commentators, including market regulator Ofgem, believe that with generating plant closures in the electricity sector, increasing reliance on imported gas and a need to invest in renewable generation, this trend is set to continue. Forecasts produced by DECC, showing the estimated impact of energy and climate change policies on average retail gas and electricity prices paid by medium-sized business users predicts rise in electricity prices from 119/MWh in 2011 to 145/MWh by 2020 and 145/MWh by 2020 and 165/MWh by Gas prices are seen to be rising, from 35/MWh in 2011 to 39/MWh by In our view, higher energy costs for smalland medium-sized businesses are therefore likely to increase the attractiveness of the energy procurement and energy savings services offered by Utilitywise. Despite the rise in energy costs that has already occurred, TPI penetration of the SME energy market remains low (9% for organisations spending less than 50,000 per year on energy) despite higher penetration among larger customer groups. Following detailed analysis Utilitywise believes that its total theoretical potential target market (SME + I&C) is in the order of 2.5m contracts, with Utilitywise 27 June

9 I&C contracts worth significantly more than Utilitywise s existing average contract size. Although Utilitywise has grown rapidly in recent years its total contracts amount to just over 20,000, equivalent to a market share of less than 1%. Clearly this still leaves significant room for growth. Utilitywise is not targeting the domestic market given the smaller scale of commissions, the higher rate of customer churn and the lack of appetite for additional energy management services. Management The board consists of four executives a non-executive chairman and two other non-executives. Simon Butterfield, CEO of EIC, is expected to join the board post the acquisition of EIC. Richard Feigen (non-executive chairman) has been advising companies in the mid-cap sector since 1986, and for 11 years he was head of investment banking at Seymour Pierce. Mr Feigen is a founder and partner of Hub Capital Partners, which advises small- and mid-cap companies. Geoff Thompson (chief executive officer) founded Utilitywise in Prior to Utilitywise, Mr Thompson held a variety of management posts at Amicus Outsourcing and Spark Response Ltd in which he gained experience helping energy supply companies acquire customers. Andrew Richardson (chief financial officer) is a qualified accountant and previously worked as finance director at Crawshaw Group Plc. Mr Richardson joined Utilitywise in Adam Thompson (chief operating officer) has been responsible for managing relationships with key energy suppliers, designing the CRM systems and driving sales growth since Michael Dent (sales and marketing director) joined Utilitywise at the end of last year. Prior to Utilitywise, Mr Dent worked as sales and marketing director at Total Gas and Power where he was responsible for expanding energy sales to the SME market. Sensitivities and risks Counterparty 75% of Utilitywise's revenues are derived from three customers. The reliance on such a limited number of counterparties brings with it a number of associated risks. Regulatory and legislative A change to the regulatory system would represent a risk although Ofgem is not considering a move towards full regulation currently. Competition Utilitywise s reliance on a small number of customer relationships has been declining in recent years. Nevertheless a change of strategy on the part of a large energy supplier (to go straight to the customer) and increasing competitive pressures from other acquisitive energy brokers could limit Utilitywise's growth prospects. At present we are not aware of any intention on the part of a supplier to change its strategy for accessing the market and such a course of action would result in the loss of considerable business to the supplier. Personnel The management team retains a significant financial stake in its success; however, the departure of these key individuals would constitute a significant risk for the business. IT Risk Utilitywise s IT systems provide the company with a key competitive advantage. However, reliance on the systems does increase the business risk in event of failure. As an acquisitive company there is a risk that Utilitywise overpays for future acquisitions. Valuation Our research has produced a wide range of possible values for the company, but we believe a value of 128p/share, (c 11.2x forecast 2014 EPS, equivalent to the average for the range of Utilitywise 27 June

10 comparable companies is the most appropriate medium-term valuation. Other approaches indicate that Utilitywise could be worth considerably more in the longer term. Peer multiples A selection of listed energy service companies are shown in Exhibit 3. In our view the paucity of the data and lack of direct comparability to Utilitywise is problematic. Energy Assets and SMS are meter owners, deriving annuity income from asset ownership, although like Utilitywise they exhibit a rapid growth trajectory. MITIE is a larger company where the utility procurement division comprises only a part of the business, which is focused on strategic business outsourcing. Inspired Energy is perhaps the closest comparable, although this business is smaller than Utilitywise. Using average year one multiples (excluding SMS) and based on consensus forecasts, Utilitywise would be worth 128p/share using a P/E benchmark and 103p/share using EV/EBITDA. Exhibit 3: Utilitywise comparable multiples (12 June 2013) P/E P/E EV/EBITDA EV/EBITDA Current Year 1 Current Year 1 Energy Assets Inspired Energy N/A N/A Management Consulting Mitie SMS N/A N/A Average (including SMS) Average (excluding SMS) Source: Edison Investment Research, Bloomberg Transaction multiples Transactions in the energy consultancy sector, show a significant range in valuations. For smaller companies the multiples have been relatively modest. Utilitywise paid c 3.2x EBITDA for Cloud Energy, while Inspired Energy paid 2.9x historic PBT for Direct Energy Purchasing. Utilitywise s proposed acquisition of EIC is struck at an EV/EBITDA multiple of 6.7x. Transaction multiples for the larger companies within the sector have also been significantly higher. MITIE paid more than 10.5x historic EBITDA for Dalkia Technical Facilities Management and 9.5x times for Utilyx. Schneider Electric also paid 10x EBITDA for M&C Energy. Applying a multiple of 9.5x to our forecast EBITDA for Utilitywise would indicate a valuation of c 170p/share. DCF Our DCF ( ) valuation uses our published forecasts for 2013 and Thereafter we assume that the number of consultants employed by the business rises by 40 each year until 2017). We expect EIC to contribute 8.5m of revenue by 2017, earning similar margins. Discounting the cash flow at a rate of 10% gives a value of 170p/share of which approximately twothirds is accounted for by the terminal value. A 2% variation in the margin would alter the valuation by 8p/share. A 1% rise in the discount rate would reduce the valuation by 16p/share. Financials Revenues We forecast revenues of 23.8m for 2013 and 35.6m for We expect EIC to contribute 0.6m to revenue in 2013 and a further 7m in Margins We expect gross profit margins of 46% in 2013, followed by a rise to 48% in Operating costs We expect costs will rise sharply to 4.4m in 2013 and to 5.4m in Tax and dividends We expect the tax rate to remain in the region of 26% and forecast dividends based on its announced policy of 3x cover. Working capital Given the expansion of the business we expect negative working capital movements in 2013 and However we understand that Utilitywise is actively engaging with a number of key customers to improve the terms of the contracts. Revision of the terms should help improve cashflow and working capital. We assume the issue of 10m shares (at 1 per share) as part of the deal to acquire EIC. Utilitywise 27 June

11 Exhibit 4: Financial summary ( '000) e 2014e 31st July IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 10,889 14,383 23,823 35,560 Cost of Sales (6,136) (8,180) (12,865) (18,491) Gross Profit 4,753 6,203 10,959 17,069 EBITDA 3,508 4,079 7,010 12,362 Operating Profit (before amort. and except.) 3,395 3,892 6,602 11,690 Intangible Amortisation (45) (29) (1) (1) Exceptionals 0 (391) 0 0 Other Operating Profit 3,349 3,472 6,601 11,689 Net Interest (59) (32) (37) (109) Profit Before Tax (norm) 3,335 3,859 6,565 11,581 Profit Before Tax (FRS 3) 3,290 3,439 6,563 11,580 Tax (1,089) (1,036) (1,707) (3,011) Profit After Tax (norm) 2,247 2,823 4,858 8,570 Profit After Tax (FRS 3) 2,201 2,403 4,857 8,569 Average Number of Shares Outstanding (m) N/A EPS - normalised N/A EPS - normalised and fully diluted N/A EPS - (IFRS) N/A Dividend per share (p) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 457 2,372 6,329 6,946 Intangible Assets Tangible Assets ,810 2,628 Investments 47 1,537 3,500 4,301 Current Assets 4,875 9,568 12,034 17,656 Stocks Debtors 4,647 1,242 2,500 3,072 Cash 227 8,227 9,379 14,361 Other Current Liabilities (2,979) (3,345) (4,148) (4,443) Creditors (2,939) (3,345) (4,148) (4,443) Short term borrowings (40) (0) 0 0 Long Term Liabilities (168) (115) (9,099) (9,099) Long term borrowings 0 0 (9,000) (9,000) Other long term liabilities (168) (115) (99) (99) Net Assets 2,185 8,480 5,116 11,061 CASH FLOW Operating Cash Flow 62 6,588 4,295 10,657 Net Interest (59) (32) (37) (109) Tax (104) (1,588) (1,368) (2,352) Capex (184) (698) (2,430) (490) Acquisitions/disposals 0 (2,490) (16,540) 0 Financing 473 6,261 10,000 0 Dividends 0 0 (1,769) (2,725) Net Cash Flow 187 8,040 (7,848) 4,981 Opening net debt/(cash) 0 (187) (8,227) (379) HP finance leases initiated Other Closing net debt/(cash) (187) (8,227) (379) (5,361) Source: Utilitywise, Edison Investment Research Utilitywise 27 June

12 Contact details Utilitywise House Long Row, South Shields, Tyne and Wear. NE33 1JA United Kingdom Revenue by geography % UK 100% CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS e N/A EPS e 34.0% EBITDA e 34.0% EBITDA e 33.7% Sales e 30.8% Sales e 17.9% Management team Non-executive chairman: Richard Feigen ROCE 2013e 373.2% Avg ROCE e 361.2% ROE 2013e 43.6% Gross margin 2013e 48.0% Operating margin 2013e 32.7% Gr mgn / Op mgn 2013e 1.5 Mr Feigen has been advising companies in mid-cap sector of the market since 1986 and for 11 years he was head of investment banking at Seymour Pierce. Richard Feigen was the founder, and is currently a partner of, Hub Capital Partners, which advises small and mid-cap companies, including Utilitywise. Chief financial officer: Andrew Richardson Andrew Richardson is a qualified accountant and previously worked as finance director at Crawshaw Group plc. He joined Utilitywise in Gearing 2013e N/A Interest cover 2013e N/A CA/CL 2013e 6.7 Stock days 2013e N/A Debtor days 2013e 31.5 Creditor days 2013e 23.9 Chief executive officer : Geoff Thompson Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Geoff Thompson founded Utilitywise in 2006 and retains a 40.7% shareholding in the business. Prior to Utilitywise he held a variety of management posts at Amicus Outsourcing and Spark Response Ltd. In these roles he gained experience of helping energy supply companies acquire customers, which led him to establish Utilitywise. Chief operating officer: Adam Thompson Adam Thompson joined Utilitywise in 2006 and has been responsible for managing relationships with key energy suppliers, designing the CRM systems and driving sales growth. He owns 11.6% of Utilitywise. Principal shareholders* (Pre share-issue. The shareholding of the directors will decline in absolute and relative terms post the issue of shares and the placement. For more details please see page 3) (%) Geoff Thompson 32.6 Adam Thompson 11.6 Investec UK Smaller Companies Fund 9.9 Andrea Thompson 8.1 Andrew Richardson 5.8 Legal & General 5.3 Companies named in this report Smart Metering Systems, MITIE, Energy Assets, Management Consulting, Inspired Energy Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Berlin, Sydney and Wellington. 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