Utility services supplier Telecom Plus (TEP), which trades as Utility Warehouse, has seen its share price plunge nearly 30% since the start of December.

There have been unhelpful headlines for the industry around Centrica (CNA) owned British Gas using bailiffs to fit pre-payment meters and an ill-advised expenses-paid trip to the Maldives for Utility Warehouse partners was crass.

However there is a another more complex reason for the share price weakness as Numis analyst John Karidis explains: ‘Ofgem sets the price cap quarterly and suppliers must now fully hedge the cost of customers’ projected energy use. Thus, a supplier will make a big loss if the spot price falls steeply versus that assumed in the price cap, and a customer churns early in the quarter.

‘In this scenario only, which may happen whilst spot prices remain volatile, the ‘acquiring supplier’ must pay the ‘losing supplier’ a material MSC (Market Stabilisation Charge).’

Numis estimates the MSC per typical household recruited averaged pretty much zero in 2022 but hit £424 in January. It now thinks Telecom Plus will hit rather than beat guidance for around 20% customer and pre-tax profit growth in the March 2023 financial year.

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