ii view: Telecom Plus pushes dividend higher

This multi utility supplier has grown its customer base and now offers an attractive dividend yield.

Full-year results to 31 March 2020

• Revenue up 9% to £876 million
• Adjusted profit up 8% to £60.8 million
• Net debt to adjusted profit (EBITDA) ratio around 0.9 times
• Final dividend of 30p per share
• Full-year (FY) total dividend up 9.6% to 57p per share

Guidance: 

• Full-year 2021 profit to be marginally below FY 2020
• Expects to maintain the FY dividend at 57p per share

Chief executive Andrew Lindsay said:

"Our results this morning show record sales, earnings and dividends, clearly demonstrating the resilience and strength of our business model. I am extremely pleased at how well our Partners and Employees have adapted to the Covid-19 environment, and the limited impact which this is having on our business.

"We have historically demonstrated strong counter-cyclical qualities, with the opportunity for our Partners to earn money, and for our Members to save money, becoming increasingly relevant during challenging economic periods. This dynamic is driving a healthy recovery in Partner activity despite social distancing restrictions, as they become increasingly comfortable with new ways of building their businesses, and growth has recently started returning towards pre-lockdown levels.

"The strength of our balance sheet is in contrast to most of our competitors in the energy markets.  This, combined with a highly motivated and growing Partner network, and a significant fall in the Ofgem price cap expected this autumn, means that we look forward to the year ahead with considerable confidence."

ii round-up:

Energy, broadband, mobile and insurance supplier Telecom Plus (LSE:TEP) today announced a near-10% increase in its dividend payment along with hopes to maintain the payment over its current full year.

The company, which trades under the brand name Utility Warehouse, supplies both households and small businesses throughout the UK. It has also seen a limited impact from the corona crisis. 

Telecom Plus shares rose by more than 5% in early UK trading, recouping their fall year-to-date. Shares for supply competitors such as Centrica (LSE:CNA) and TalkTalk Telecom (LSE:TALK) are down by 50% and 24% respectively. 

Customer numbers grew by 2.7% over the year to 652,237, although growth was down on the 4% achieved during the 2019 financial year. Services supplied rose by 6.4% to over 2 million. 

Revenues, profit and the dividend payment of 57 pence per share for the year all reached record levels. 

Given a modest increase in customer bad debts and rising unemployment in the wake of Covid-19, profit for the current year is forecast to fall marginally below this year’s outcome. Management stressed the high degree of estimation due to the uncertainties of Covid-19. The total annual dividend for the current year of 57p per share is expected to be maintained.

Telecom Plus uses over 45,000 paid part-time partners to expand its customer or membership base, rather than using advertising or price comparison sites. Partner recruitment jumped by almost 25% over the year.

ii view:

Telecom Plus has a goal of being the nation’s most-trusted utility provider. It points to an energy market which it believes continues to be distorted by suppliers with wholly unsustainable pricing strategies. Over 20 suppliers have left the market during the last two years, and Telecom Plus believes that, in the absence of strong balance sheets to absorb their continuing losses, further insolvencies seem inevitable. 

For investors, Covid-19 and its shadow over the outlook and potential customer debts need to be remembered, but its differentiated business model sets it apart from rivals. A forecast dividend yield in the region of 4% - not guaranteed – also remains highly attractive in today’s Covid constrained and ultra-low interest rate environment. For now, and given ongoing progress, Telecom Plus continues to attract higher-risk income seekers. 

Positives: 

• Attractive dividend yield
• Record revenues and profits

Negatives:

• Covid-19 could cause customer debts to spike
• Growth in customer numbers slowed

The average rating of stock market analysts:

Buy