A chance to make 20% re­turn by in­vest­ing in Tele­com Plus

En­ergy provider in sweet spot de­spite neg­a­tive sen­ti­ment to­wards sec­tor

Shares - - GREAT IDEAS -

Talk of tar­iff price caps and lots of in­dus­try un­cer­tainty may make an en­ergy sup­plier an odd pick for in­vestors right now. Yet we be­lieve there are good rea­sons why Tele­com Plus (TEP) is uniquely placed to pros­per in the com­ing months.

Trad­ing as the Util­ity Ware­house, the com­pany is Bri­tain’s big­gest in­de­pen­dent en­ergy sup­plier (not one of the big six), sup­ply­ing gas and elec­tric­ity to more than 600,000 UK homes and busi­nesses.

What makes it stand out from the crowd is that gas and elec­tric­ity are not all it sup­plies. It also of­fers home phone, broad­band and mo­bile into a sin­gle billing pack­age.

CUS­TOMER QUAL­ITY

More than half (55%) of new cus­tomers last year signed up to take at least four ser­vices, called the ‘Dou­ble Gold’ bun­dle. This means that Tele­com Plus can of­fer more cus­tomers the best all round deal which should boost cus­tomer loy­alty.

The com­pany loses about 1.1% of cus­tomers per month through switch­ing ver­sus the in­dus­try av­er­age of 1.36%.

Cus­tomer qual­ity is con­tin­u­ally im­prov­ing, cre­at­ing valu­able cash flow vis­i­bil­ity for the com­pany in an in­dus­try fairly no­to­ri­ous for Mar­ket value: Mar­ket value:

run­ning up bad debts (cus­tomers re­fus­ing to pay their bills).

This strat­egy will be fur­ther bol­stered in the fu­ture with plans to pro­vide car, home, pet and boiler in­surance, plus wa­ter sup­ply.

Tele­com Plus reck­ons this strat­egy will help grow the num­ber of ser­vices it of­fers by up to 10% this year on the 2.29m re­ported in the 12 months to 31 March 2017.

LEV­EL­LING THE PLAY­ING FIELD

Gov­ern­ment price caps on stan­dard vari­able tar­iffs (SVT) will nar­row the scope the big six have to use big SVT prof­its to sub­sidise pro­mo­tions to new cus­tomers. Tele­com Plus re­fuses to force its ex­ist­ing cus­tomers to pay for new cus­tomer dis­counts.

The ef­fect will be a more even play­ing field in the fu­ture, eas­ing pres­sure on new cus­tomer ac­qui­si­tion and likely re­turn­ing growth to the dou­ble dig­its of the past.

Tele­com Plus is a FTSE 250 com­pany with a strong bal­ance sheet that throws off large amounts of cash. That is demon­strated by its prom­ise to re­turn 85% of earn­ings as share­holder div­i­dends each year.

That im­plies a 50p per share pay­ment this year, with 52p per share ex­pected in 2019, for a 4.3% yield. Fin­nCap’s £13.90 price tar­get puts the 12-month po­ten­tial to­tal re­turn at 20%. (SF) 1350 1300 1250 1200 1150 1100 1050 2016

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