(MENAFN- ProactiveInvestors)The 43% slide in the share price of Utilitywise (LON:UTW) in the last three months will have been a painful shock to the system for shareholders - among them chief executive and founder Geoff Thompson who holds 11% of the company. But for prospective investors this retrenchment may offer an opportunity: the chance to get into a stock that is currently valued at 9.6 times forward earnings and that is forecast to pay a dividend yield of 4%. The cynics will point to the catalyst for that fall in the share price – an earnings miss worries over the quality of those earnings and rising net debt. The discrepancy between reported EBITDA (underlying earnings) and cash has bothered the market for a while now. The company procures the best electricity gas and water tariff for businesses and is paid a commission by the supplier. The nub of the problem and I am perhaps over-simplifying things here is that Utilitywise under current accounting conventions recognises certain revenues from these suppliers before they actually hit the bank account. So reported earnings have tended to be far higher than cash earnings. Thompson when he came in to see us at Proactive pointed out that this anomaly tends to unwind over the course of a year. Its debtors are large blue-chip corporates that use Utilitywise as a sales channel. In other words they pay up – just not when the accountants or market would like them to. Bad debts aren't a problem and the business has more than enough cash to meet its working capital needs Thompson said. Moreover he and the team are working with the utilities to speed up the payment terms. This may take some time and horse trading to achieve - two years according to Liberum one of the company's brokers. It expects earnings per share (which it forecasts to be 26.55p) to be 'broadly backed' by free cash flow in 2017. If this happens it could be transformational for the share price Liberum argues. Instead of being valued on a 'risk adjusted' basis the stock might be re-valued in a way that recognises its growth potential. Liberum's current price target is 358p. The debate over cash and earnings has detracted from the fact that Utilitywise is expanding at a very decent rate. In the last financial year (to July 31 2014) revenues nearly doubled to £48.6mln while EBITDA was up 81% at £14.2mln. The trading update issued last month said sales were likely to be £69mln – up 42% year on year and slightly ahead of market expectations. EBITDA by contrast is set to undershoot. finnCap the firm's other broker has cut its estimate to £16.5mln from £18.3mln previously – giving year on growth of 16%. Looking more closely at Utilitywise it styles itself as a trusted adviser to businesses looking to secure power and water more cheaply. It has 26000 customers here in the UK and 4000 in Europe and is the biggest business of its type in the country. It has done this all from a standing start in just nine years. So far – so straightforward. Recently Thompson and the team have been prompted to take a good look at how they transact their business. That has meant changing its 'route one' tactic of hitting the phone to something more subtle. As a result the sell has become a lot 'softer' Thompson revealed. Now it offers services such as bill validation and energy health checks before it bids for work – all of which plays to this idea of becoming a 'trusted adviser' to companies. Practically this has meant bulking up on marketing expertise expanding the e-commerce channels increasing field sales and hiring more energy consultants. Also it has drafted in more senior talent able to take Utilitywise to the next level of performance and presumably profitability. This investment explains why the company's net debts hit £7.5mln in the year just gone. The figure was certainly higher than expected and one analyst forecast the company would show a modest cash surplus. There were some major positives in results. They revealed the company is succeeding in selling other discrete services such as energy auditing alarms and dashboards (that are intellectual property and IT-led). Demand for this growing array of value added services has been greatest in the corporate division which services the big blue-chip clients. Direct billings for add-ons were 25% of total revenue. Energy and water procurement remains core and Thompson has no doubt that Utilitywise has 'only just scratched the surface' here. The recent investment should help maintain historic growth rates. The firm is also expanding outside the UK – tentatively at the moment as it finds its way. Acquisitions will be based on adding something new and innovative to the product offering the CEO said. He won't be drawn into simply acquiring new customers principally because the prices being quoted for rival businesses are too high. These sorts of deals have to be earnings accretive immediately he said. Thompson is in no doubt that despite recent setbacks Utilitywise has huge untapped potential. 'I remain a significant shareholder. It is disappointing to see what has happened to the share price' he says. 'My view is clear we are investing in the business for the long term. There is no doubt we can keep growing the business in the UK and Europe.' Woodford Investment Management run by Neil Woodford arguably Britain's top stock picker remains a steadfast supporter. His firm bought a further 2% of the on the day of Utilitywise's poorly received trading statement taking its stake to just over 26%. You suspect Woodford who is noted for holding stocks for years spotted an opportunity rather than a problem with Utilitywise.
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