Telecom Plus shares offer growth at good value

Telecom Plus (TEP) bundles together household services, including energy, broadband and insurance, into one package. The benefit is that by paying for it all together consumers get a better price.

At the start of 2023, Telecom Plus was benefiting from excessive energy prices forcing households to look for cheaper utilities suppliers. There was a concern it might struggle to grow in more ‘normal’ times, but these results have helped put some of that worry to bed.

In the year to March, customer numbers increased by 14.1 per cent to 1.01mn. During the period of steep energy price rises growth exceeded 20 per cent, but since then annualised growth has remained in double digits.

The drop in energy prices does mean that revenue fell 18 per cent to £2.04bn. However, energy is the lowest-margin product, so relative growth in mobile and broadband services meant gross profit actually increased 16 per cent to £355mn. This fed through to a 9.9 per cent rise in adjusted earnings per share to 109p.

Management plans to keep increasing profit through a combination of price rises, continued customer growth and improved operational leverage. As the number of customers rise, Telecom Plus should be able to spread its operational expenses further, leading to improved operating margins.

The company is guiding for customer growth of between 12 and 14 per cent this year, while it expects adjusted pre-tax profit to rise around 8 per cent to between £124mn and £128mn. Broker Peel Hunt currently has it trading on a forward dividend yield of 5 per cent, which is good value for a company that has proved it can grow consistently at a double-digit rate. We stick to buy.

Last IC View: Buy, 1,679p, 21 Nov 2023