Energy supplier OVO considers options including sale – MKFM 106.3FM

Britain's fourth largest domestic energy supplier is calling on bankers to explore options such as bringing in a new investor or a sale, 15 years after launching in a bid to challenge the sector's oligopoly.

Sky News has learned that OVO Group, founded by Stephen Fitzpatrick, is set to hire Rothschild to help with its strategic review.

City sources said over the weekend that a range of possibilities would be considered during the process, which is expected to take several months.

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These measures will likely include refinancing – discussions are already underway on OVO's existing borrowings – as well as the issuance of new shares to potential investors, or a partial or complete sale by some of the company's shareholders.

An outright sale of the business is seen by insiders as unlikely at this stage, but should be explored as part of the strategic review.

OVO, which has around four million customers, falls behind Centrica, owner of British Gas, Octopus Energy and E.ON Next, in the ranking of the UK's leading gas and electricity suppliers, according to market share data provided by Ofgem, the sector regulator.

Under the leadership of Mr. Fitzpatrick, who launched OVO in 2009, the company has positioned itself as a challenger brand offering superior service to established players in the industry.

OVO's transformative moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain's leading energy companies.

Its growth has not been without challenges, with insiders citing a difficult relationship with Ofgem and a torrent of customer complaints about overcharging.

In recent months, OVO shareholders have reshaped its management team, appointing former J Sainsbury chief executive Justin King as chairman.

In May, Mr King recruited David Buttress, the former boss of Just Eat who was briefly Boris Johnson king of the cost of living, as the new general director of the energy group.

Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.

It should focus on improving the company's customer service performance and explore ways to further diversify its products and services.

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Key to OVO's valuation will be the growth of its technology platform, Kaluza, which was created to license its software to other energy providers and provides customers with smart electric vehicle charging and heat pumps.

OVO recently announced that AGL Energy, one of Australia's largest energy suppliers, had purchased a 20% stake in Kaluza at a valuation of $500 million ($395 million).

Kaluza is reportedly exploring new expansion opportunities in Europe, Japan and the United States.

OVO has also entered the electric vehicle charging sector under the Charge Anywhere brand, adding 34,000 public charging points across the UK.

In 2022, the OVO Group recorded an unadjusted loss of 1.3 billion, attributable to a drop in the value of the energy it had purchased in advance to meet its future supply commitments.

He said it had “no impact on cash flow” in a company filing and that value would increase as customers use the purchased energy.

Last summer, the company announced a €200 million secondary share sale, which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increase their stakes in the company.

Other investors include Mitsubishi Corporation, the Japanese conglomerate.

Mayfair is said to hold a stake of more than 30%, while Mitsubishi owns around 20%.

Mr Fitzpatrick also remains a significant shareholder.

As of this weekend, it was unclear which OVO investors might seek to divest their interests, although insiders acknowledged that a significant proportion of the company's shares could end up changing hands.

Like its competitors, OVO had to face the impact of industry price cap after a period of huge price hikes that sent customers' bills soaring.

Last month Ofgem said the cap would fall in the July to September quarter by the annualized equivalent of 122, to 1,568.

Other major players in the sector include EDF and Scottish Power, which is owned by Spain's Iberdrola.

In recent months, Octopus Energy, led by Greg Jackson, has crystallised a valuation of more than €7 billion by selling its stakes to a number of new investors.

Centrica has a market valuation on the London Stock Exchange of €7.3 billion.

OVO, whose valuation in a major deal was unclear this weekend, declined to comment.

(c) Sky News 2024: Energy supplier OVO explores options, including sale