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Customer surge at Telecom Plus

The cost of living crisis is benefiting demand
June 21, 2022
  • Target of 1mn new customers in the medium term
  • Raised profit forecast

Telecom Plus (TEP) is a cost of living crisis winner. The utility services provider, which trades under the Utility Warehouse brand and offers bundled packages across the energy, communications, and insurance markets, has seen robust growth in customer numbers as consumers cut costs where they can and are attracted by the company's tariffs and pricing.

Co-chief executive Andrew Lindsay told Investors’ Chronicle that the “new normal” of higher energy bills would support demand for Telecom’s services over the medium to long term.

Customer numbers rose by 11 per cent in the year to 729,000 and the company expects these to grow by a fifth in 2023. Management is now aiming to add 1mn new customers to Telecom’s books in the next five years, a target which comes in above Numis’ growth forecast.

The impact of customer growth was apparent in the top-line energy revenue for the year, with electricity sales up by 15 per cent to £451mn and gas up by almost a fifth to £296mn. Telecom is also well positioned to deal with a new regulatory landscape – Ofgem has published proposals meant to safeguard the energy market from a repeat of the catastrophic supplier collapses of recent times. A smaller, more stable market should aid the company's competitively-priced offering.

While energy took 77 per cent of total revenue in these results, the business has more to offer. Landline and broadband sales fell by 2 per cent to £130mn, and mobile sales were up by 10 per cent to £45mn. Telecom was only authorised as an insurance broker in 2020, but Lindsay said that insurance “should be a material growth driver moving forwards”. The company’s Cashback card, which offers various savings, has grown to be one of the major UK prepaid cards.  

Peel Hunt analysts said that the company “is at the early stages of a multi-year growth opportunity – and we see the potential to double customer numbers and treble profits”. The house broker has the shares trading on 25 times forward 2023 earnings, which isn’t particularly cheap. But against this sits rising customer numbers, strong cash generation, and an improving outlook – Telecom has hiked its adjusted profit before tax forecast to £75mn for next year and expects to raise the full-year dividend by at least 14 per cent. Last November, we recommended locking in profits and selling the stock. But the world has changed a lot since then. We move to hold.  

Last IC View: Sell, 1,448p, 23 Nov 2021

TELECOM PLUS (TEP)   
ORD PRICE:1,807pMARKET VALUE:£1.43bn
TOUCH:1,802-1,808p12-MONTH HIGH:1,894pLOW: 994p
DIVIDEND YIELD:3.2%PE RATIO:40
NET ASSET VALUE:261p*NET DEBT:38%
Year to 31 MarTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201889341.038.850.0
201980443.042.552.0
202087648.145.957.0
202186143.541.557.0
202296747.245.157.0
% change+12+9+9-
Ex-div:14 Jul   
Payment:5 Aug   
*Includes intangible assets of £156mn, or 197p a share