Insider: FTSE 250 directors buy big at record low valuation

Five directors of Telecom Plus (LSE:TEP) have staked £4 million backing a new long-term strategy that last week caused shares in the Utility Warehouse owner to skid to a 14-year low.

The pivot towards higher-value multi-service customer growth fuelled a 25% slide for the FTSE 250-listed shares as the plan was accompanied by a rebasing of near-term profit expectations at a time of mounting competition.

Non-executive chair Charles Wigoder, who founded Utility Warehouse in 2002, led the buying as he boosted his stake to 11.4% through dealings worth £3.5 million.

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Chief executive Stuart Burnett also spent £350,000 and finance chief Nick Schoenfeld picked up shares worth £200,000, alongside smaller trades by two non-executive directors.

Burnett’s purchase was made at 703.4p, which compares with the level of 945p prior to the release of the strategy update and annual results that also included a big dividend cut.

The shares were 2,000p last summer and a record 2,500p in autumn 2022, having more than doubled over the previous year as customer numbers surged on the back of households looking to manage rising utility bills.

However, Bank of America pointed out last week that the company’s current forward valuation multiple of 8.2 times forecast earnings has never been lower.

The company provides integrated services spanning communications, energy and insurance markets, meaning customers get a single monthly statement. Utility Warehouse does not advertise, relying instead on 77,200 partners who recommend the service to friends and family.

Results for the year to 31 March showed total customer numbers jumped by 23.3% to 1.43 million, including 193,000 fixed-line/broadband customers acquired from TalkTalk.

Adjusted profits improved by 4.7% to £132.2 million, which was at the bottom end of the company’s guidance range after energy consumption dropped in an unseasonably warm winter. Revenues rose by 5.6% to £1.94 billion, while the gross margin improved to 20%.

The five-year plan will seek to improve earnings quality by doubling the number of multi-service customers to more than one million by 2031. As this requires investment of £55 million a year, adjusted profit for the current period is set to drop to between £80 million and £90 million.

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It is targeting an annual profit of £175 million by the end of the five years, with £80 million from a higher level of contribution from multi-service customers and £20 million from digital savings.

Shareholder distributions are targeted to be about £100 million, representing around 80% of adjusted profit after tax, with at least 50% of this by way of dividends.

However, the company’s new dividend policy means that the payment planned for 28 August will be 12p a share compared with the 57p of a year earlier. This will bring the total for the year to 50p a share or £40 million, with a further £40 million to be allocated to share buybacks.

Bank of America slashed its price target from 2,103p to 900p following the results and strategy update as it adopts a cautious approach to the recovery beyond 2027, with its 2031 profit estimate 36% below the management’s estimate.

The bank said its glass half-empty interpretation of the need for investment in multi-service and cross-sell pricing and promotions was that the company has been over-earning in the post-energy crisis period and is having to respond to rising competition. 

It added: “At this stage we adopt heightened caution given the scale of the investment, the increased competitive dynamics and long dated nature of any margin turnaround - unlikely to be reported until the first half of the 2028 financial year.”

Berenberg, which lowered its price target from 2,600p to 1,200p, said: “Telecom Plus now enters a significant investment programme to protect its competitive moat against aggressive pricing strategies from its competitors in the energy and broadband markets. 

“Ultimately, we believe this is the right strategic direction for the business, albeit one that comes at a significant and surprising cost, and delivery of the plan will be key to driving share price performance.”

The shares, which began trading on the junior OFEX exchange in August 1997, rallied to 778p during Friday's session.

Chemring Group (LSE:CHG) stakes worth £250,000 have been bought by two of its non-executive directors after the defence products firm traded at 15% below its share price of two months earlier.

Tony Wood, who was appointed chair in December 2024, spent £200,000 at 473p on Friday, while boardroom colleague Alpna Amar picked up a holding worth £47,400 on the same day.

Their dealings follow a disappointing June for the FTSE 250-listed stock, even though interim results at the start of the month showed a record order book of £1.4 billion.

Revenues rose 6.5% to £237.3 million, underpinned by a strong performance within the Countermeasures & Energetics division and a return to growth in Sensors & Information.

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A lower margin of 10.3% primarily reflected the expected relatively weaker first half in Sensors & Information due to business mix and lower utilisation rates.

The performance was also impacted by near-term disruption in the UK market, reflecting the delayed publication of the Defence Investment Plan (Dip).

While near-term fiscal pressures may affect the pace of spending, chief executive Michael Ord said the long-term direction of travel remains supportive and that the dip is expected to mean a return to more normal levels of UK government order placement.

He added: “Elevated defence and national security spending is increasingly seen as a structural feature of the geopolitical environment, rather than a temporary response to current conflicts and regional tensions.

“Across NATO, planning assumptions have shifted towards territorial defence and peer-conflict readiness, supporting structurally higher budgets.”

An example of the increasingly resilient demand in countermeasures came with last week’s announcement that Chemring has reached agreement with the US Department of War to restart manufacturing at its airborne decoys business in Philadelphia.

The new award has a maximum value of $300 million over five years, with guaranteed minimum awards of $35 million per annum for the first three years. 

Deutsche Numis has a price target of 650p, while Peel Hunt said recently that the shares represent good value based on its 595p estimate.