Interactive Investor

Hot stock Telecom Plus is in a sweet spot

21st June 2022 15:48

Graeme Evans from interactive investor

While other companies struggle with the impact of rising inflation and a possible recession, this firm’s share price is making new highs for fun.

Bullish growth forecasts have powered Telecom Plus (LSE:TEP) shares to another record as the Utility Warehouse owner continues as one of this year’s hottest FTSE 250 stocks.

Shares are up more than 60% in the past year - a performance only bettered in London’s second tier by Indivior (LSE:INDV) and FirstGroup (LSE:FGP) - as customer numbers surge on the back of households looking to manage rising utility bills.

The company provides integrated services spanning communications, energy and insurance markets, meaning customers get a single monthly statement. Telecom Plus does not advertise, relying instead on partners who recommend the service to friends and family.

Adjusted profits in today’s annual results were a better-than-expected £61.9 million for a rise of 10.3% as customer numbers grew 10.8% to 729,000 and revenues hit £967.4 million.

With interest in energy and utility bills never higher, Telecom Plus expects to grow its customer base by 20% in the current financial year. It also disclosed a medium-term goal to sign up at least one million additional customers over the next four to five years.

Amid growing visibility over the level of the government price cap for the coming winter period, it now expects 2023 profits to be ahead of City forecasts at around £75 million.

This should enable an increase in its dividend to not less than 65p for the full year, up from today’s unchanged award of 57p. Shareholders can expect the latest full-year payment of 30p a share to be made on 5 August.

Today’s forecasts helped shares to surge as high as a record 1,894p before they settled 48p higher at 1,816p. However, joint house broker Peel Hunt believes the company is at the “early stages of a multi-year growth opportunity” as it raised its target price by 200p to 1,950p.

It said: “We see Telecom Plus as ideally positioned in the current economic environment, with a compelling customer offer and a highly motivated partner network.”

Analysts at Numis also believe there’s further to go after raising their price target by 10% to 2,480p, adding that the risks to their upgraded forecasts are on the “upside and material”. They are also comfortable about current bad debt forecasts.

Numis said: “We think Telecom Plus’s customer growth outlook is well underpinned by the big and enduring advantages of its business model, and the many actions Ofgem is taking to make sure that the relatively few players remaining in the retail energy supply market (about 15 now vs more than 60 at peak) compete only sensibly.”

The company, which was set up from self-contained offices in a pub car park in Henley-on-Thames, raised £1 million on OFEX as a start-up in August 1997.

When current executive chairman Charles Wigoder joined in 1998, the share price on Ofex had fallen from the 50p at which it had just raised cash to as low as 5p. It later recovered and moved to the main stock market in July 2000 when the share price was 200p.

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