ii view: Telecom Plus shares surge as records fall

Saving customers money on their utility bills and offering an attractive dividend yield. We assess prospects.

Full-year results to 31 March

• Revenue up 156% to £2.48 billion
• Adjusted pre-tax profit up 55% to £96.2 million
• Final dividend of 46p per share
• Total dividend for the year up 40.4% to 80p per share
• Net cash held of £103.4 million, up from net debt of £70.4 million

Andrew Lindsay & Stuart Burnett Co-chief executives said:

"This has been an outstanding year for the company: the fundamental strengths of our business model have reasserted themselves and delivered a strong outcome for all our stakeholders.”

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ii round-up:

Bundled utility provider Telecom Plus (LSE:TEP), which trades under the Utility Warehouse brand, flagged a series of new records as it attracted a wealth of new customers to help them save on their energy and broadband bills. 

A record 22% jump in new customers, taking its customer base to 886,579, helped push revenue up 156% to a record £2.48 billion and adjusted pre-tax profit up 55% to £96.2 million. The total dividend for the year is up 40.4% to 80p per share, including a final payment of 46p.

Shares in the FTSE 250 company climbed more than 8% in UK trading, clawing back ground lost since December's peak above 2,500p. The FTSE 250 itself is down almost 6% year-to-date. 

Telecom Plus supplies both households and small businesses throughout the UK with services from electricity and gas to broadband, mobile phone contracts and even insurance policies. Rather than advertising or using price comparison sites, it uses paid partners to sell its services to new customers, the number of which jumped by a quarter over the year to almost 60,000.

High customer demand to help them save money expanded the number of services Telecom Plus provides by almost a quarter to 2.8 million, with management estimating that it saved its customers over £30 million in energy bills during the year.  

Accompanying management comments pointed to a ‘strong’ start to the new financial year, with expected double-digit annual percentage customer growth leading to a broadly corresponding increase in adjusted pre-tax profit. 

First-half results are likely to be announced in mid to late November. 

ii view:

Founded 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 almost 49% of revenues during this latest financial year, with gas supply a further 41.5%. Then came fixed communications such as broadband at around 5.5% of revenues, with the balance of 4% split evenly between mobile phone contracts and other services.  

For investors, a fall in the gross profit margin to 12.4% from 19.5% last year, given a big increase in the proportion of lower margin energy sales, is noteworthy. Higher staff and technology costs pushed administrative expenses upwards, customer bad debts rose to £28.7 million from the prior year’s £11.6 million (although remain at under 2% of overall revenues), while there could be some easing in energy bill costs as commodity prices decline.

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More favourably, climate change and energy transition more broadly may keep energy prices volatile going forward, fuelling demand for the company’s cost saving services. A differentiated business model also sets it apart from actual suppliers such as SSE (LSE:SSE) and Centrica (LSE:CNA), while the diversity of its products is also worth remembering.

For now, and while some caution remains sensible, a utility related business offering a forecast dividend yield of around 5% will likely remain appealing to income investors.

Positives: 

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

Negatives:

• Recent fall in the Ofgem Price Cap
• Rising customer bad debts

The average rating of stock market analysts:

Buy