ii view: Telecom Plus confident in new customers wins

This FTSE 250 multi-utility company offers an estimated future dividend yield of over 3%. Buy, sell, or hold?

Full-year results to 31 March

• Revenue up 12.3% to £967.4 million
• Adjusted profit up 10.3% to £61.9 million
• Final dividend of 30p per share
• Total dividend for the year unchanged at 57p per share
• Group net debt including lease liabilities down 1.4% to £70.4 million

Guidance:

• Expects customer base to grow by around 20% during the full year 2023
• Expects full-year adjusted profit before tax to be around £75 million

Co-chief executive Andrew Lindsay said:

"The business is performing extremely well, delivering record results ahead of expectations.  Demand for the long term savings we offer remains high, and underlying organic customer growth is continuing at an annualised rate of around 20% in the new financial year.

"It is now inevitable that energy prices will rise significantly again in October and are likely to remain high for the foreseeable future.  Thanks to our multiservice proposition we expect to continue offering our customers the lowest energy prices in the country this winter, giving every household the opportunity to make significant savings at a time when they need them the most."

ii round-up:

Under its Utility Warehouse brand Telecom Plus (LSE:TEP) is a provider of utility services including energy, communication services and insurance.

It supplies both households and small businesses throughout the UK using over 40,000 paid partners to expand its customer or membership base rather than using advertising or price comparison sites.

For a round-up of these latest results, please click here. 

ii view:

Started in 1996, Telecom Plus focuses mainly on the residential market. Its partners, or representatives look to offer the four core services of electricity, gas, broadband and mobile phone services, along with other services such as insurance and a cashback payment card. 

Electricity supply accounted for 46% of revenues during this latest financial year, with gas supply a further 30%. Then came fixed communications such as broadband at around 13% of sales, mobile phone services at just under 5% and other services the balance.  

For investors, although small, a rise in its customer related bad debt charge to £11.6 million from last year’s £11.2 million should be noted. The pandemic also hurt, with interaction towards potential new customers proving challenged. What's more, the share price has doubled since last September, and shot higher in recent months, putting them on an estimated forward price/earnings ratio (PE) above the long-term average.

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On the upside, its differentiated business model sets it apart from suppliers such as SSE (LSE:SSE) and Centrica (LSE:CNA). Significant rises in energy bills and a cost-of-living crisis are also expected to see consumers continue hunting around for better value alternatives, while its diversity of products is also worth remembering. A utility related business offering an estimated future dividend yield of over 3% might attract income investors, but the shares are not cheap .

Positives: 

• Attractive dividend yield (Not guaranteed)
• Differentiated business model

Negatives:

• Dividend has remained unchanged since 2020
• Valuation not obviously cheap

The average rating of stock market analysts:

Strong buy