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Telecom Plus stifled by price cap increase

Customer numbers and services supplied both increased meaningfully
Telecom Plus stifled by price cap increase

Andrew Lindsay – chief executive of Telecom Plus (TEP) – calls the 12-month period to March 2019 “a turnaround year” from five years of “slowly reducing growth rates”. Customer numbers rose by 4 per cent to 635,039, and the group supplied 2.5m services to its club members – up by 8.2 per cent.

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Telecom Plus effectively operates as a discount club, whereby customers are members. It doesn’t advertise, but instead relies on word-of-mouth referrals from members and self-employed partners. Those in the latter category number more than 40,000, and can receive a small percentage of monthly revenues generated by members who they have collected.

Revenue was flat on the previous year even though the group continued to build its customer base, a reflection of warm winter weather conditions, and the effects of regulator Ofgem’s price cap increase, which knocked energy sales in the fourth quarter. Still, the group reckons the UK’s price cap policy has “created a fairer energy market than before”. And it is protected from the full impact of the cap through its wholesaling supply agreement with nPower.

Encouragingly, the customer churn rate sat at around 12 per cent – half of the energy industry’s average – despite record levels of switching activity among households. Such resilience was attributed to the improving quality of the group’s customer base, more than a quarter of whom now take all of their core utilities from the group. This metric continues to rise.

Net debt increased by around 200 per cent to £37m, largely as a result of increased working capital needs, tied to factors including changes in the phasing of some energy industry payments, higher tech investment, and the cost of smart meter roll-outs, although certain factors could justifiably be classified as one-offs.

Telecom Plus expects adjusted pre-tax profits of £60m-£65m for the year to March 2020 – up from £56.3m in FY2019, while house broker Peel Hunt expects adjusted EPS of 63.3p for FY2020, rising to 67.3p in FY2021.

TELECOM PLUS (TEP)   
ORD PRICE:1,494pMARKET VALUE:£1.17bn
TOUCH:1,492-1,496p12-MONTH HIGH:1,542pLOW: 995p
DIVIDEND YIELD:3.5%PE RATIO:35
NET ASSET VALUE:288p*NET DEBT:16%
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201572942.140.640.0
201674535.132.846.0
201774040.938.048.0
201879341.038.850.0
201980443.042.552.0
% change+1+5+10+4
Ex-div:11 Jul   
Payment:2 Aug   
*Includes intangible assets of £179m, or 229p a share