A chance to make 20% return by investing in Telecom Plus
Energy provider in sweet spot despite negative sentiment towards sector
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.
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