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Share tip of the week

Each week, our analysts put the spotlight on a company from our list of recommended shares to buy. As always, it's recommended as a medium/long term investment (approximately 18 to 36 months). This week's share tip of the week is...

Telecom Plus (TEP)

  Company Sector Current price
(pence)
Change
today
  
Investment
objective

Risk
Our
view
  Telecom Plus (TEP) Fixed Line Telecom  1190.00 c  -0.83%    Balanced Higher  Buy
 Analysis last updated on 20/10/17 at 1188p Recommended stop loss of 20%

View charts, and further company data

Company overview

Telecom Plus is a fully integrated provider of a wide range of utility services. The company owns the Utility Warehouse brand which provides homes and small businesses throughout the UK with, home phone, mobiles, broadband, gas and electricity.

Our view

Under/over valued?

The group provide an alternative to the usual well known utility suppliers for gas, electricity, telephone and broadband services through its Utility Warehouse brand. One of the keys to growth for the group is the number of new customers who sign up for ‘gold' membership, which involves taking all five of its services. Recently that take up has been around 50% of new members, which in turn improves the visibility and quality of earnings. Going forward it has plans to provide car, home and boiler insurance along with water supply.

Results in June reported a 16.5% increase in profits to £40.9m. The dividend for the year was 48 pence a rise of 4.3%. The group will return £25m to shareholders as a result of the Opus sale, this was lower than expectations. For the year ahead they are targeting an increase of 5-10% in the number of services provided.

The CEO highlighted the difficult market conditions, but also that these will not persist indefinitely and that he is confident that when wholesale commodity prices trend higher, customer growth rates will return towards past levels. In the latest update he pointed to “beginning to see green shoots emerging”. The share price received a boost from proposals to cap energy prices at the recent conservative party conference. This is a higher risk buy recommendation for a balanced portfolio.

NB The company gives a 10% discount for holders of at least 1,500 shares.



Bullish points[/h3


• A progressive dividend policy helped by a solid balance sheet and cash flow.


• The number of services taken by each customer continues to rise.


• Could benefit from political focus on energy providers.


• Encouraging start to home insurance business.



Bearish points

• Lower energy prices have been a negative, leading to lower growth forecasts for the year. One analyst believes that its energy tariffs have become uncompetitive, although the gap between introductory offers and standard tariffs has started to narrow.


• Some utility companies have been freezing or cutting bills, meaning that fewer people will change providers.


• Pressure on long-term Npower contract as a result of lower prices.



Comment updated 20 October 2017

Author: Graham Spooner, Investment Research Analyst



The facts

Client numbers stand at just over 600,000.

Below are the trailing 12 month results to the end of the final period versus the previous 12 month trailing period. As we are reporting rolling returns below, the data will be different to that which you see on other parts of our web site. Results are as follows



Current

Basic Earnings per Share, 53.

Dividend per Share 48p

Dividend Yield 4.2%

Revenue £740m

Operating Profit £40.9m

Debt to Equity

Cash on the Balance Sheet

Dividend Cover 1



Previous

Basic Earnings per Share 49.7

Dividend per Share 46p

Revenue £744m

Operating Profit

Debt to Equity

Dividend Cover



Change

Basic Earnings per Share 7%

Dividend per Share 4.5%

Revenue

Operating Profit



Forecast Estimates 2018

Earnings per share 57p

P/E 20.8x

Dividend yield 4.0%



Month(s) company is expected to go ex-dividend

July

November


View our previous recommendations

Please read our investment research policy to understand how our analysts reach their recommendations.



Valued using at least 15 minute delayed prices (where available)

Prices may fluctuate and appear inconsistent with the day's trading on or around the opening and closing of the stock market. This is due to the pre and post market auctions for certain LSE stocks, this is usually between 07:30 and 08:15 and from 16:30 until 17:00. The day's closing prices are indicated with a "c" against the price.