No doubt you've heard the following before…"It's as safe as houses", "don't put your money in the bank, own the bank", "people will always need X, Y or X". These types of statements are often used by investors to drive home the point as to why a particular business or asset is a 'sure thing'.
Unfortunately, there is nearly always an exception to every rule and when it comes to profitable businesses there is nearly always an innovative competitor looking for a way to move in and snare an incumbent's pool of profits.
Take for example the Australian retail energy market…
Yours truly remembers sitting in an audience two decades ago listening to a well-respected stock broker put forward the bull case for owning AGL Energy Ltd (ASX: AGL). The crux of the argument was that people will always need gas and electricity.
Fast forward to today and there is a big question mark hanging over the viability of the business models of AGL and Origin Energy Ltd (ASX: ORG).
As Justin Braitling, who is the fund manager of listed investment company (LIC) Australian Leaders Fund Limited (ASX: ALF), recently pointed out in his quarterly report to shareholders, the industry dynamics of the Australian energy market are changing.
These changes include the deregulation of the industry, an oversupply of generation capacity, a shift to residential solar, a rise in the affordability and performance of battery storage, a drop in demand by the manufacturing, industrial and household sectors, and new entrants creating new competitive threats.
These changing industry dynamics have the potential to be serious disruptors to the industry and may ultimately lead to legacy assets such as gas and coal fired power stations becoming largely redundant.
Consumers may still require energy but how they get it could be dramatically different to the past and incumbent providers are set to be the biggest losers.
