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Telecom Plus builds in bundles

Despite fierce price competition, Telecom Plus grew its member base and delivered record earnings
June 24, 2015

Falling energy prices, mild weather and aggressive introductory offers from market newcomers dampened trading at Telecom Plus (TEP). But the cut-price utilities and telecoms supplier still posted record sales and profits, prompting investors to bid its shares up 3 per cent on results day.

IC TIP: Buy at 848p

The group, which operates its business as a discount club under the trading name Utility Warehouse, grew its member base by 11 per cent in the year to just short of 582,000. Coupled with an improved energy supply agreement with Npower, that boosted operating profit by 23 per cent to £38m. The key to its success has been bundling services, which has driven up average revenue per member and discouraged customers from switching suppliers. Over 29 per cent of new members signed up for combined energy, fixed-line, mobile and broadband services in April and May, up from 21.1 per cent in the first quarter of the reported period.

Telecom Plus increased the number of individual services it provided by 11 per cent. It also grew its pool of self-employed partners - who receive a cut of monthly revenue from members they recruit - by 12 per cent to over 49,500. Management are now eyeing markets where they can compete on price, convenience and quality of customer service, starting with insurance.

Broker finnCap expects adjusted EPS of 59.1p for the year to March 2016 (FY 2015: 52.5p).

TELECOM PLUS (TEP)
ORD PRICE:848pMARKET VALUE:£680m
TOUCH:843-846p12-MONTH HIGH:1,525pLOW: 730p
DIVIDEND YIELD:4.7%PE RATIO:21
NET ASSET VALUE:245p*NET DEBT:38%†

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201141927.530.122.0
201247130.733.827.0
201360234.638.731.0
2014 (restated)66034.737.735.0
201572942.140.640.0
% change+11+21+8+14

Ex-div: 23 Jul

Payment: 18 Aug

*Includes intangible assets of £213m, or 266p a share

†Includes £21.5m in deferred payments to Npower