AGL buys Amaysim energy for $115m
Second-tier electricity retailers face a fight to survive amid a tough regulatory clampdown and bad debts from the COVID-19 pandemic, Amaysim said after selling its energy unit to power giant AGL Energy for $115m.
Concerns have been mounting in the industry that an economic downturn is starting to pile pressure on the balance sheets of second-tier players, with almost three quarters of small businesses seeing their cash flow reduced from the coronavirus.
Amaysim’s sale of Click Energy for $115m was less than the $120m it paid to buy the company three years ago, with chief executive Peter O’Connell conceding the electricity industry faced a tough trading environment.
“With energy the margins have been crunched by regulation and COVID-19 was like the last straw,” Mr O’Connell said. “There is a big likelihood that bad debts in energy retail will rise significantly. You’ve seen that with the big players and we think once JobKeeper and JobSeeker goes, bad debt will increase very much.”
Regulatory burdens have included a move by the Morrison government which imposed default market offers from July 1 last year, aimed at solving the problem of customers who fail to negotiate better deals with power companies by sticking with their existing electricity providers after their contracts expire. The Victorian government also introduced its own separate default offer.
Click Energy, established in 2006, is an Australian energy retailer selling electricity to private and business customers in Victoria, NSW, South Australia and Queensland with the business put up for sale through Luminis Partners.
The deal for Amaysim’s Click Energy adds 215,000 energy customers and takes AGL’s overall reach to 4.2m services to homes and businesses against a target of 4.5m by 2024. It also includes Click Energy’s connection service provider On The Move.
The deal hands AGL a bigger customer base although questions remain over the loyalty of Click customers to remain with the provider, Macquarie said.
“Growth for the majors has been challenged over the last five years,” Macquarie analyst Ian Myles said. “Click adds 6 per cent to the customer base, a significant step change and possibly translates into a more moderate customer growth strategy. The risk is that the quality of the Click customers is lower – lower average consumption, higher bad debts, and higher structural churn – and as such the value of the transaction fades.”
AGL, which dumped an ambitious $3.1bn takeover of telco Vocus in June 2019, has added a number of bolt-on deals under the leadership of Brett Redman including a $93m deal to buy Western Australian power retailer and generator Perth Energy and the purchase of regional telco Southern Phone Company.
AGL will finance the transaction through existing debt facilities and will take $40m of transaction and integration costs as a significant item in the 2021 financial year. The deal equates to a cost per service of $442 excluding a valuation applied to On The Move with AGL noting 97 per cent of Click’s customers use online billing.
Amaysim provides SIM-only mobile plans and has expanded into the home internet market, but AGL’s deal does not include the telco side of the business.
It listed in 2015 with a value close to $400m but is now worth $210m.
Amaysim delivered a $600,000 underlying annual profit on Monday after a $7.1m loss a year ago but declined to provide 2021 guidance due to economic volatility.
AGL rose 0.1 per cent to $14.80 on Monday, while Amaysim shares fell 0.7 per cent to 70c.