ii view: Telecom Plus switches up focus on dividends

First-half results to 30 September

• Revenues down 21% to £698 million
• Pre-tax profit up 9% to £39 million
• Interim dividend of 37p per share, up from 36p per share
• Net debt down 6% to £114.6 million

Chief executive Stuart Burnett said:

"We are pleased to see continuing double digit compound growth in customer numbers for the third consecutive year, by continuing to help households to stop wasting time and money.  

“The tax rises introduced in the recent Budget are expected to increase the pressures on household budgets, an environment in which the savings and earnings provided by our business model are likely to be in growing demand.”

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ii round-up:

Telecom Plus (LSE:TEP) today detailed increased profits, with the bundled utility provider now raising its focus on shareholder returns and targeting a full-year increase of at least 13% to 94p per share. 

That’s potentially up from last year’s dividend increase of 3% and comes despite a one-fifth fall in revenues due to lower energy prices. Pre-tax profit for the half year to 30 September rise 9% to £39 million and aided by increased group efficiency. Telecom Plus, which trades under the brand name Utility Warehouse, declared an interim dividend of 37p per share, up from last year’s 36p. 

Shares in what is now the UK’s seventh biggest energy supplier rose 2% in stock market trading, having come into this latest news up almost a tenth year-to-date. That’s ahead of a 6% fall for energy generator SSE (LSE:SSE) and behind a 3% improvement for power transmission provider National Grid (LSE:NG.). 

A constituent of the FTSE 250 index, Telecom Plus supplies households and businesses throughout the UK with services from electricity and gas to broadband, mobile phone contracts, and even insurance policies, all under one monthly bill. 

Customer numbers for the period rose 13% year-over-year to 1.078 million, leaving it on track to achieve its goal of two million customers. Progress was helped by a new electric vehicle (EV) charging tariff and a full fibre broadband offering. 

Management remains confident in meeting its full-year estimate of 12-14% in customer growth and for adjusted pre-tax profit to come in at between £124 million and £128 million – potentially up from last year's £117 million. 

The FTSE 250 company flagged an expectation for the gross cost of recent Budget changes to employer's national insurance contributions and the national living wage to come in at £3 million in its fiscal year 2026 – a cost management expects to mitigate.

ii view:

Founded in 1996, Telecom Plus uses commission-paid partners to sell services to new customers, as opposed to advertising or using price comparison sites. Electricity supply accounted for its biggest slug of revenues over its last financial year at 52%, followed by gas supplied at 35%. Broadband accounted for a further 7%, mobile phones 3.5% and other services including insurance the balance of 2.5%.   

For investors, customer growth slowed to 13% in this latest period, down from 14% over its last financial year, and likely due to falling energy prices. Customer bad debts of £15 million, or 2.2% of sales require monitoring, with any major upturn in UK unemployment likely feeding in. Costs for businesses such as wages remain pressured, while geographical exposure is limited to the UK only. 

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To the upside, a differentiated business model sets it apart from rival suppliers such as SSE and Centrica. Growth in customer numbers has been ongoing for more than 25 consecutive years. Pressure on consumers to save on household bills persists given elevated borrowing costs, while climate change and required energy transition may keep energy prices volatile, fuelling demand for the group’s cost saving services.  

For now, and despite risks, a consensus analyst estimate of fair value above £27 per share combined with a forecast dividend yield of more than 5%, look to support continued investor optimism.  

Positives: 

• Differentiated business model
• Targeting two million customers over the medium term

Negatives:

• Elevated costs
• Potential rising customer bad debts

The average rating of stock market analysts:

Buy