- Better-than-expected full year growth and profit
- Model more resilient to switching competition, analysts claim
- Stock reverses eight-month decline
FTSE 250 consumer energy services supplier Telecom Plus (TEP) topped the mid-cap leader board on 27 June 2023 after posting better-than-anticipated full year results.
Shares in the multi-utility business rallied 10% to £16.62, reversing a sharp downtrend that has been in play since November 2022.
Revenue growth in the year to 31 March 2023 rose 156% to £2.48 billion driven by growth in customers (up 22% to 886,579), and services taken (+24% to 2.8 million. ‘Adjusted pre-tax profit of £96.2 million was marginally ahead of our estimate (£95.4 million) largely because gross profit margin exceeded our expectations,’ said Numis analysts.
8% BEAT ON GROSS PROFIT MARGIN
Gross profit margins fell seven percentage point to 12.4% yet this was significantly better than the 11.5% Numis had forecast. This was despite an unexpected rough £15 million one-off charge from regulator Ofgem’s Market Stabilisation Charge measure, implemented to help ease rampant energy price inflation over the past year.
As a multi-utility provider, Telecom Plus supplies households with core gas and electricity services but also landline and mobile telecoms, broadband and insurance, while also running a members cashback card scheme.
The model can help hard-pressed consumer lower their overall household bills, which analysts believe gives the company an advantage over rival suppliers when energy prices return to normal and switching competition escalates, as it is expected to do through the rest of 2023.
MANAGEABLE CHURN
Telecom Plus said its customer churn – those that switch away to alternative providers - ticked up from 3% to 5% on an annualised basis in recent months.
‘Being multi-utility allows Telecom Plus it to have some resilience to the fluctuating market with 44% of revenue contributions being split between, mobile, broadband, cashback card, insurance and legacy telephony, with its broad range of offerings and increasing discounts with a number of services taken making it relatively more attractive in a cost-of-living crisis,’ said Megabuyte analyst Shekhan Ali.
Numis predicts a 21% jump in pre-tax profit for the current year to 31 March 2024 to £116.4 million, with an accompanying 86.4p per share dividend, implying a 5.2% income yield.
