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Telecom Plus benefits from industry attrition

The multiutility group doubled the rate of customer growth during the first half
November 20, 2018

An influx of smaller energy providers meant that Telecom Plus (TEP) has had to battle it out in a crowded marketplace over the past five years, but the multiutility provider seems to have reached a turning point. Customer numbers rose almost 2 per cent during the first half, double the rate of growth at the 2017 half-year. Many newer market entrants – which hadn't forward bought their wholesale energy when prices started falling – have been forced out of business, says executive chairman Charles Wigoder.   

IC TIP: Buy at 1258p

Pre-tax profit growth was held in check by rising costs associated with acquiring customers and the uptick in the number of services provided, with the latter up 4 per cent. However, gross margins rose to 23 per cent from 22.5 per cent, thanks to improved terms with its communications suppliers and industry-wide energy price increases. Customers taking all five of its core services rose to 21.8 per cent, from 19.3 per cent in 2017. Meanwhile, the churn rate remained stable at 12 per cent, below an industry average of more than 20 per cent.   

Analysts at house broker Peel Hunt expect adjusted pre-tax profits of £57m for the year to March 2019, giving EPS of 58p (from £54.3m and 55.3p in 2018).

TELECOM PLUS (TEP)   
ORD PRICE:1,258pMARKET VALUE:£979m
TOUCH:1,252-1,258p12-MONTH HIGH:1,296pLOW: 995p
DIVIDEND YIELD:4.1%PE RATIO:32
NET ASSET VALUE:286p*NET DEBT:8%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201729919.117.724
201831119.318.525
% change+4+1+5+4
Ex-div:29 Nov   
Payment:14 Dec   
*Includes intangible assets of £183m, or 235p a share