Telecom Plus earnings growth defies price cap

Sales for Telecom Plus (TEP) came in slightly weaker in the first half, as energy regulator Ofgem pushed down allowed energy prices across the industry. Yet the multi-utility provider was still able to nudge up gross profits by 4 per cent, as the margin improved to 23.7 per cent, from 22.4 per cent the same time last year.  

The group’s customer base contracted marginally, having mostly recovered from a drop during the spring lockdown. The second half looks more promising, as the company logged a net 2,200 customer increase during October alone. As a tough economic backdrop persists, a record number of partners have flocked to sign up with Telecom Plus, which should help fuel further customer growth.

In its largest core service, energy, the group grew its smart meter penetration to more than half of its customer base, as well as logging a significant uptick in boiler volumes at its Glow Green business, which contributed to the improved overall margins. 

Management said adjusted pre-tax profits for the 2021 financial year are on track to come in marginally below last year’s record £61m. With strong new partner growth, and smaller competitors being squeezed out of a tougher market, we think that Telecom Plus is still well-positioned in the long run. Buy. 

Analysts at Peel Hunt forecast adjusted pre-tax profits of £56m and EPS of 57.7p in 2021.

Last IC View: Buy, 1,426p, 16 Jun 2020