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Telecom Plus commits to dividend despite Covid disruption

Utility Warehouse owner’s pre-tax profits slipped as lockdown restrictions hurt partners
June 18, 2021
  • Profits suffered in 2020, in line with expectations
  • Decent dividend yield maintained

Telecom Plus (TEP), which owns and operates Utility Warehouse, posted results in line with expectations, with operating profits falling by a tenth to £45.8m. 

Management credited the drop to the impact of lower retail energy prices implemented by regulator Ofgem last year, weaker prices during the peak winter period, as well as extra costs associated with the pandemic. Admin expenses, for example, grew by 13 per cent to £76.8m. 

Overall gross margins improved slightly by just under 1 per cent to 20.1 per cent, although that was partially offset by an increase in headcount, and investment in its digital transformation programme. 

Meanwhile, partner recruitment was up two-fifths year-on-year, likely as smaller businesses sought commercial relationships that could provide support during the pandemic. However, management flagged that it was taking longer than expected for partner activity to recover, as lockdown restrictions continue in much of the UK. 

Customer numbers were slightly ahead of last year, up 0.8 per cent to 657,411 - especially impressive given that home visits, also affected by lockdowns, are typically the primary means of securing new business. The group also noted that it had increased its number of services by 51,000 to reach just under 2.1m. 

The company said that it believes market conditions will swing back in its favour by the autumn, as government stimulus packages are withdrawn and inflationary pressures continue. It should then be in a robust position to support households that are tightening their budgets and looking to switch providers. “We are increasingly confident that the pent-up demand...will deliver a return to pre-pandemic levels of net service growth,” it said. 

Management noted that it expects profits in the current year to be around £60m, which is slightly ahead of broker Peel Hunt’s initial forecasts of £59m.  The lift of lockdown restrictions in the coming months may also help the group recover customer sign-ups and its ability to physically install its products in homes. Indeed, analysts at Peel Hunt are bullish, forecasting adjusted pre-tax profits and EPS of £59m and 57.1p in 2022, rising to £63m and 63.7p in 2023. Telecom Plus is proposing a final dividend of 30p, bringing the total for the year to 57p and representing an attractive yield of 4.7 per cent. We stick to buy. 

 

 

TELECOM PLUS (TEP)   
ORD PRICE:1,206pMARKET VALUE:£ 950m
TOUCH:1,204-1,210p12-MONTH HIGH:1,540pLOW: 1,154p
DIVIDEND YIELD:2.5%PE RATIO:29
NET ASSET VALUE:270p*NET DEBT:34%
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201774040.938.048.0
201889341.038.850.0
201980443.042.552.0
202087648.145.957.0
202186143.541.530.0
% change-2-10-10-47
Ex-div:08 Jul   
Payment:30 Jul   
*Includes intangible assets of £166m or 211p a share