ii view: Telecom Plus maintains double-digit customer growth

First-half trading update to 30 September

• Customer numbers up 67,000
• Services supplied up 139,000 to a total of 3.266 million

Chief executive Stuart Burnett said:

“We are pleased to see our compounding double digit customer growth continue, simply by helping households to stop wasting time and money. 

“Our unique multiservice model means we can continue to provide market-leading savings, and sustainably outcompete, in a wide range of market conditions. This is ever more important for our customers as we head into the winter months, helping to offset the recent increase in the energy price cap.”

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ii round-up:

Telecom Plus (LSE:TEP) trades under the Utility Warehouse brand.

A constituent of the FTSE 250 index, the company supplies households and businesses throughout the UK with services from electricity and gas to broadband, mobile phone contracts, and even insurance policies, all under one monthly bill. 

For a round-up of this latest trading update announced on 3 October, please click here. 

ii view:

Founded in 1996, Telecom Plus, uses around 68,000 paid partners or representatives to sell its services to new customers, as opposed to advertising or using price comparison sites. Electricity supply accounted for its biggest slug of revenues over its last financial year at 52%, followed by gas supplied at 35%. Broadband accounted for a further 7%, mobile phones 3.5% and other services including insurance the balance of 2.5%.   

For investors, some easing in energy prices over the last year has potentially reduced broader customer momentum in switching suppliers. Customer bad debts require monitoring, with any major upturn in UK unemployment likely feeding in. Costs for businesses such as wages are still pressured, while geographical exposure is currently limited to the UK only. 

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More favourably, a differentiated business model sets it apart from rival suppliers such as SSE (LSE:SSE) and Centrica (LSE:CNA). A new electric vehicle tariff will likely appeal to potential new customers. Pressure on consumers to save on household bills persists given elevated mortgage and rental costs, while climate change and energy transition may more broadly keep energy prices volatile, fuelling demand for its cost saving services.  

In all, and despite ongoing risks, a consensus analyst estimate of fair value at over £27 per share, combined with a forecast dividend yield of more than 4.5%, will likely remain attractive to investors.  

Positives: 

• Differentiated business model
• Targeting two million additional customers over the medium term

Negatives:

• Elevated costs
• Potential rising customer bad debts

The average rating of stock market analysts:

Buy