The utilities industry is a highly-regulated market with tremendous regional fragmentation despite its maturity. However, it presents excellent opportunities for ARM companies.
Utilities collections accounted for $550 billion in revenue for the ARM industry in 2014. This market segment is comprised of three broad sectors – electricity, gas, and water – but electricity and gas are projected to account for 97.6% of all utility revenue in 2015. Overall, Kaulkin Ginsberg estimates a 2.25% CAGR over the next five years, which falls in line with long-term GDP growth rates.
As depicted in the chart above, comparing the S&P 500 Index to the S&P Utilities Sector Index allows us to quantify the market volatility for utilities. Overall, the utilities market is more stable than the market as a whole:
- It has a 14.8% standard deviation compared to a 23.5% standard deviation for the market.
- Kaulkin Ginsberg also calculated the utilities index beta, which is well below 1 at 0.69, supporting our stability claim.
On average, utilities include services that consumers cannot do without, even during recessionary times. For this reason, this is an ideal market for ARM companies. Market fragmentation combined with the sheer volume of customers makes it great for first- and third-party collections, collection litigation, and client relationship management (CRM) services.
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