Small Talk: Slow progress on curbing the power of energy giants – but small businesses can do more to help themselves

Another week, another inch forward in the grindingly slow battle against vested interests and uncompetitive markets that do so much damage to consumers and small businesses alike. Six days after announcing the referral of the banking sector for a full-scale competition inquiry, the Competition and Markets Authority (CMA) announced the next step in its investigation into the energy market, which has already been referred for the same process.

The CMA’s “issues statement” is progress of a sort, in that it lays out further detail of what exactly it thinks the problems are in the energy market. But we’re a long way short of final conclusions or recommendations. Small businesses hoping for action to protect them from uncompetitive energy providers will have to wait until Christmas to see what goodies fall their way – Christmas next year, that is, since the CMA’s final report is not due until 25 December 2015. Goodness knows how long it will take after that to implement any regulatory reforms that are recommended.

As with the banking inquiry, most of the discussion about the energy market is focusing on the CMA’s investigations into consumer concerns. Consumers have actually become pretty adept at switching gas and electricity provider – not that it always does them much good – but unfair contracts, long-term lock-ins and penalty clauses have long prevented many smaller companies exercising the same rights.

While larger companies are able to negotiate their own terms with energy providers, smaller businesses do not have the purchasing power to do the same.

The energy industry will point to the promises it has made around rollover contracts, where small businesses have been automatically moved into new long-term arrangements, often at uncompetitive prices, unless they objected to this during a narrow and poorly advertised window of opportunity. However, substantial numbers of small businesses are still stuck with these terms. And this is far from being the only way in which smaller companies are abused by the energy industry.

The Federation of Small Businesses wants to see energy companies forced to publish easily comparable fixed prices so that small businesses can work out exactly what they might save by changing supplier. Clearer terms and conditions are also a priority for the group, which says many of its members have little understanding of the intricacies of their energy supply contracts.

One of the reasons that switching rates are low is that too many firms haven’t taken the time to investigate their options, despite the focus in recent times at many small businesses on cost reduction and operational efficiency. It may be more difficult for a small firm to change provider than a consumer, but it’s not impossible, particularly with the help of independent price comparison services such as Make it Cheaper.

Jon Moulton’s Better Capital has had a busy week, closing the deal on the £80m acquisition of OfficeTeam, the office products and supplies company.

The Alternative Investment Market-listed closed-end fund, which offers exposure to private equity turnaround cases, has bought OfficeTeam from a consortium of lenders that took control of the business following a restructuring last year.

Better Capital made the acquisition via its BC12 fund, which trades a separate pool of assets to the other fund run out of the investment manager Better Capital 2009.

It takes the number of holdings in the fund to four – but while the three existing holdings are thought to be performing well, the fund’s price has drifted back close to its IPO price of January 2012 and the shares trade at a discount to net asset value of 6 per cent.

Mick Gilligan, an investment companies analyst at Killik & Co, believes this could be a valuation opportunity. “This poor share price action looks unjustified, and we think it is due to a combination of investor disappointment that the managers have not deployed more capital and some negative sentiment surrounding Better Capital as a result of poor operating performances in the firm’s other listed fund,” he says.

BC12 is due to announce final results on Wednesday and Gilligan expects to see “some value uplift”.

The Alternative Investment Market’s end-of-term report for the first half of the year makes encouraging reading as London’s junior stock market continues to bounce back from the lean years that followed the financial crisis and the recession.

Analysis published by the Aim specialist Allenby Capital this week reveals that £654m was raised on Aim during June, a 191 per cent increase on the same month of last year. That took the total raised during the first half of 2014 to £3.73bn, 151 per cent up on the same period of last year – in fact, Aim stood just £250m short of the total raised during the whole of 2013 by the end of the first half.

Allenby Capital’s research also flags up another positive development for Aim, with trading volumes increasing and liquidity improving.

“We believe that monthly trading value as a percentage of market capitalisation helps give an indication as to the liquidity of an individual stock,” the broker says. “Aim stocks traded on average 3.56 per cent of their market capitalisation in June, an increase on the 2.94 per cent in the previous month.”

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