Author: roger9932

Interactive Investor Acquired

Interactive Investor have announced that they are being acquired by Abrdn, reportedly for £1.5 billion. Interactive Investor have been providing a popular and low-cost share dealing platform for private investors and have been owned by JC Flowers recently. Interactive acquired The Share Centre a few months back and now have about 400,000 clients.

At least it looks like Interactive Investor clients won’t have to learn their way around a new platform as there is a commitment to keep the business as a separate operating entity with existing management and the same pricing while Abrdn have relatively few direct retail clients. Abrdn are a large fund manager though so no doubt we will see the Interactive Investor platform promoting their funds in due course. But any changes might be of concern to existing Interactive clients.

The comment published in the FT is relevant: “The most successful platforms in recent years have been those independently owned, said David McCann, analyst at Numis. He said creeping bureaucracy, lack of management focus and the worst sin of trying to cross-sell products from the parent group to platform customers amount to very real risks for the success of the tie-up”.

That pretty much sums up my view of the likely benefits or disbenefits of this merger although clearly Abrdn have larger financial resources that might help Interactive Investor in an increasingly competitive platform world. But will large company management really understand the needs of retail investors?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Bitcoin Mania

Two recent events tell me that the mania for Bitcoins and other digital currencies is alive and well, while I am still stuck in the dark ages and prefer to invest in companies that produce something.

On the way home by train from central London today sat next to me were two young ladies obviously returning from doing some Christmas shopping in the West End. They were discussing what to give to young children for xmas. One mentioned that they knew kids who had been given Bitcoins as an xmas present.

Secondly when I was in my local bank last week, someone was in there to transfer cash to a foreign based coin exchange or broker. The counter clerk queried it but let it go through.

The FCA banned the sale of crypto-derivatives to retail customers in October 2020 and later issued a warning to retail investors of the risks associated with other cryptoasset-related investments, stating that those who choose to invest should be prepared to lose the full amount of their investment. But are they really doing enough to educate the general public about the risks associated with such assets? I don’t think so.

 But giving Bitcoins to young children may of course be very educational. They might learn that when something is valued not on any intrinsic merit or future income potential but on what speculators are willing to pay for it then it’s going to be a very volatile asset.   

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Stock Market Investing – It’s a Doddle

An amusing announcement today was by AJ Bell. They are launching a new app-only investment platform to be called “Dodl”. Clearly they wish to suggest that stock market investing is a doddle when I think it is anything but. After 30 years of investing, I still find that some of my new share picks don’t turn into profitable ones. There is no simple formula for picking successful investments, but experience does seem to help a lot.  They should have called the app “Tricky”.

AJ Bell clearly intend to attract new investors by making stock market investment appear simple and fun. To quote from their press release: “Investing needn’t be scary, with Dodl’s friendly monster characters on hand to guide people through the application process, as well as providing information to help people make their investment decisions”. To make it even more attractive the new app offers zero commission trading but there will be an annual charge of 0.15% of the portfolio value for each investment account with a £1 per month minimum charge.

This may prove a competitive threat to other investment platforms and encourage even more consolidation among providers. And it’s clearly a response to the zero commission platforms such as eToro that have been attracting new investors of late.

Is this a positive move? Or will it encourage people to become stock market traders and speculators rather than long-term investors? If you make investment too easy, i.e. to be done at minimal cost and without prior thought or research is that not positively dangerous?

I also feel it could be that these new low-cost platforms might be gaining business without a sound understanding of the real cost of doing business, i.e. they are using it as a loss-leading marketing approach in the hope of making money later. That was the reason many alternative energy suppliers recently went bust.   

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Electric Vehicles, Pod Point IPO and Bulb Rescue Cost

If the Government has its way, we’ll all be driving electric cars (EVs) soon. One of the concerns of drivers though is they might run out of battery power so the provision of chargers is of key importance in driving acceptance of electric cars.

There is clearly a big potential market for chargers, not just in homes but also in public places, at office car parks, supermarkets and other venues. One of the providers of chargers is Pod Point Group (PODP) who recently undertook a public stock market listing (IPO). The prospectus they issued (see link below) gives a very good overview of the market for electric vehicles and the charging infrastructure in the UK.

Pod Point was founded in 2009 and has installed over 100,000 charge points mainly in the UK. There are government grants available (OZEV) for home installations although those are likely to be withdrawn or altered from 2022. The government is also funding from 2022 large on-street charging schemes and rapid charging hubs across England. Meanwhile car manufacturers are focussing on production of new electric only (Battery Electric Vehicles – BEVs) and hybrid models. Some 6.6% of new vehicles sales were EVs in 2020 and by 2040 it is estimated that 70% of all vehicles on our roads will be EVs.

Chargers fall into two main categories – AC and DC with the latter providing more rapid charging. Home charging is typically via slow AC because UK homes do not have 3-phase electricity supplies. There are several different connector types. Pod Point estimate they have 50-60% of the UK home charge points and 29% share of public installations. But there are a number of competitors include BP Pulse. Petrol station forecourts are one location where chargers are being installed but it is unclear where the dominant charging location (home, office, etc) will be in future.

Those people with homes with no off-street parking will need to charge at public locations unless viable “pavement” chargers are developed. London-based Connected Kerb plans to install 190,000 on-street chargers by 2030.

Pod Point owns some installations under commercial arrangements with venue locations and that includes 396 Tesco sites where slow chargers are installed. Is that to encourage shoppers to spend more time in the store while their vehicle is recharging one wonders?

Pod Point doubled its revenue in 2020 and more than doubled its revenue in the first six months of 2021, but still made a large operating loss. The market cap of Pod Point at the time of writing is about £380 million.

How the market for the provision of EV chargers will develop is unclear and there are the usual numerous risk warnings in the prospectus. Government interference in the sector is clearly one risk and when a market is growing rapidly there are often folks willing to plunge in regardless of short-term profitability. The big oil companies are also moving into the sector and might provide significant competition.

An example of the problem caused by misguided Government interference in free markets is the collapse of Bulb which is apparently going to cost £1.7 billion to keep it afloat and ensure customers remain connected to gas supplies. It could be more if the market price of gas continues to rise. The cost to the Government will mean it is one of the largest bail-outs they have had to provide since the banking crisis in 2008, and they are unlikely to get their money back in this case.

As for most IPOs I will be avoiding investing in Pod Point until the company is clearly profitable and its market more established but the company has certainly come a long way in a short period of time. Trying to forecast the future profitability of Pod Point is exceedingly difficult – there are just too many variables.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

Pod Point Group Prospectus: https://investors.pod-point.com/prospectus

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Bulb Collapse, Telecom Plus Results and FCA Globo Action

Yesterday energy supplier Bulb collapsed and was put into Special Administration. Bulb has 1.7 million customers and is the largest of 20 alternative energy suppliers to go bust recently. Most of their customers have been taken on by other suppliers but apparently nobody was willing to take on Bulb’s so effectively the company has been nationalised.

These companies have all been hit by the rapid rise in gas prices while the price cap imposed by Ofgem meant they could not raise their prices to their customers. Established suppliers such as Telecom Plus (TEP) consistently complained that the newer energy suppliers were building a customer base by selling at less than cost and the irrational price cap proved to be their undoing. Forcing businesses to fix their customer prices when input prices are based on market whims is a recipe for financial disaster in any market.

Coincidentally Telecom Plus, which I hold, published their half-year results this morning. They are a likely beneficiary from suppliers disappearing from the market. They reported “Net customer growth in October of over 15,000 and they are expecting around 10% growth in customer base during H2 with double-digit annual percentage growth thereafter”. There is always someone who benefits from financial disasters.

They also made these comments: “Over twenty energy companies have ceased trading since the summer, leaving over two million customers dependent on the safety net provided by the market regulator, Ofgem, to maintain their supplies and protect their credit balances through the Supplier of Last Resort (SOLR) mechanism.  These corporate failures take the total number of suppliers that have exited the market in the past five years to over 50, with further failures expected over the coming months.

Whilst primarily blamed on rising wholesale prices, this catalogue of failures, and the associated billions of pounds of costs that will ultimately be borne by consumers, reflect a regulatory regime that encouraged a clearly unsustainable ‘race-to-the-bottom’ approach to competition.  The resultant price war has eroded consumer trust and caused significant financial detriment, as the cost of these failures will need to be recouped through higher energy bills over the coming years.

Ofgem’s recent open letter to energy suppliers is therefore a welcome statement of intent to reform the regulatory framework towards one that genuinely fosters sustainability, investment, good service and fair competition amongst properly resourced and differentiated suppliers.

It is clear that the retail energy market has undergone a paradigm shift, bringing an end to the unsustainable practices which had become widespread over the last seven years of selling energy below cost to attract new customers, using customer credit balances as working capital, and failing to accrue for regulated renewable obligation payments.

In that environment, it stands to reason that an established, well-capitalised energy supplier benefiting from a sustainable cost advantage that is derived from bringing consumers a highly differentiated ‘all your home services in one’ proposition, should thrive.   As the dust settles on the prolonged energy market price war, we believe we are better positioned than ever to grow our market share significantly over the coming months and years”.

Other news today is a report in the Financial Times that the FCA have filed an action in the High Court against the former CEO and CFO of Globo (GBO). That company collapsed in 2015 after the accounts were shown to be a complete work of fiction with the claimed cash on the balance sheet non-existent and revenue also fictitious. It was a similar case to the more recent one of Patisserie Valerie also audited by Grant Thornton. The FRC declined to take action over the audit of Globo but it is good to hear that after so many years the FCA is finally taking some action.

As a former shareholder in Globo I have an interest in this matter and did provide some information to the FCA but there has been no contact from them since 2019. I am trying to find out more about the nature of the legal action now pursued (there is nothing on the FCA web site).  

Globo well demonstrates the weakness of UK audits, the poor enforcement by the FRC and FCA, the lack of transparency over what they are doing and the length of time it takes for those bodies to take action.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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