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Telecom Plus weathers price war and energy weakness

The energy and telecoms group sold more services and grew its customer base
November 22, 2016

Warmer weather, lower gas prices and more energy-efficient UK households meant sales dipped at Telecom Plus (TEP) in the reported period. But as the energy and telecoms group earned a smaller slice of turnover from less profitable energy services, its margin widened by 1.6 percentage points to 21.1 per cent. Coupled with a £4.2m windfall from a legal settlement, that drove adjusted pre-tax profits up 11 per cent to £25.1m.

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Telecom Plus focused on attracting more households and businesses, and selling more services to each. Despite aggressive discounting among utility and broadband peers, it grew its customer base by about 1.5 per cent to just over 0.6m, and supplied 2.2m services - a 2.4 per cent rise. Its offer to install free LED lightbulbs for customers taking all five of its main services also proved popular: this cohort increased from 11.7 per cent to 15.8 per cent of the total.

Management expects to benefit from the recent recovery in wholesale energy prices, which have forced rivals to temper their introductory offers. It also plans to trial a home insurance product soon, and supply water to businesses once the market opens up to competition in 2017.

Broker Peel Hunt raised its forecasts to adjusted pre-tax profits of £58m this financial year, giving EPS of 59.6p, up from £54.4m and 56.4p in FY2016.

TELECOM PLUS (TEP)
ORD PRICE:1,208pMARKET VALUE:£968m
TOUCH:1,206-1,210p12-MONTH HIGH:1,260pLOW: 803p
DIVIDEND YIELD:3.9%PE RATIO:28
NET ASSET VALUE:243p*NET DEBT:30%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201529415.214.322.0
201629118.717.823.0
% change-1+22+24+5

Ex-div: 1 Dec

Payment: 16 Dec

*Includes intangible assets of £197m, or 246p a share