London-listed energy efficiency firm Eaga was disappointed by the UK Government’s spending review because of the phasing out of the ‘Warm Front’ programme which it manages (www.warmfront.co.uk).
Shares in Eaga fell by more than one-fifth to 83.5p following the news. Warm Front, which provides low-income households and the elderly with insulation and heating improvement grants funded by the Government, is being phased out over the coming 29 months.
The full details of the winding down of the scheme were not in the spending review document, but were released by the Department of Energy and Climate Change later in the afternoon. There will be a fall in the budget for Warm Front from £345 million this year to £110 million in 2011-12 and then £100 million in 2012-13. After that it will be replaced by something known as the Green Deal, in which the recipients of grants will pay back the cash out of energy savings.
Reductions were expected, but this is worse than Eaga had anticipated and it plans to discuss the operational arrangements with DECC. The company is also considering the impact of the phasing out on its figures.
KBC Peel Hunt maintained its 2011-12 profit forecast at £53.8 million after the recent interim management statement, rising to £55.2 million the following year. Previous to the recent change in policy, the broker believed that Eaga would be a long term beneficiary of Government measures even if Warm Front was
phased out. The uncertainty about the replacement schemes means that, at best, the benefit may take some time to become apparent.
Eaga is hopeful that an obligation for energy companies to provide help to poor households, plus the Green Deal and Renewable Heat Incentive programmes, will provide opportunities to offset the loss of revenues.
Market: London
Symbol: EAGA
Price: 71p
12 month high/low: 157.8p/57.25p
Market cap: £179m
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