Telecom Plus — Unique proposition drives customer growth

Research: Consumer

Telecom Plus — Unique proposition drives customer growth

The attractiveness of Telecom Plus’s (TEP’s) bundled utility proposition underpins the progress made in FY24, with record profits and customer numbers. The normalisation of energy prices in the year was offset by growing non-energy prices, while the growth in the customer base to over one million clients helped to boost profits. Management expects to deliver 10–15% growth in net customers in the medium term and is confident in the outlook.

Written by

Milo Bussell

Analyst, Consumer and TMT

The attractiveness of Telecom Plus’s (TEP’s) bundled utility proposition underpins the progress made in FY24, with record profits and customer numbers.

Consumer

Telecom Plus

Unique proposition drives customer growth

Utilities

QuickView

24 June 2024

Price

1,750p

Market cap

£1,382m

Share price graph

Share details

Code

TEP

Listing

LSE

Shares in issue

78.9 m

Business description

Telecom Plus is a leading UK multiservice utility provider. The company trades as Utility Warehouse (UW) and bundles utilities across four essential verticals: energy, broadband, mobile and insurance. Customers simplify household bills, while making material cost savings. The company acquires new customers through its word-of-mouth UW Partner network, which had over 68,000 members in FY24.

Bull

TEP’s unique bundled utility service model means it has no listed competitors.

The company has four revenue streams but a centralised cost base, resulting in sustainably lower costs than potential new entrants.

Regulation since the UK energy crisis in 2021 has resulted in higher barriers to entry within the UK residential energy provider market.

Bear

Due to geopolitical events in recent years, European energy markets have been extremely volatile. A significant fall in residential energy prices would adversely impact the business.

Its markets are highly competitive with low switching costs for customers.

TEP currently has low share of the UK residential electricity market.

Analysts

Milo Bussell

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

The attractiveness of Telecom Plus’s (TEP’s) bundled utility proposition underpins the progress made in FY24, with record profits and customer numbers. The normalisation of energy prices in the year was offset by growing non-energy prices, while the growth in the customer base to over one million clients helped to boost profits. Management expects to deliver 10–15% growth in net customers in the medium term and is confident in the outlook.

Surpassing the milestone of one million customers

TEP achieved the significant strategic milestone of passing one million customers at end-FY24, growing its customer base by 14% to 1,011,489 (FY23: 886,579). Its bundled proposition continues to appeal to customers with a high lifetime value who appreciate fairness and ease regarding their utilities. The unique Team Purple partner network, TEP’s word-of-mouth distribution network, also grew 14% to 68,251 (FY23: 59,842), reflecting its attractive proposition for partners seeking additional income streams amid a cost-of-living crisis. In the mid-term management believes it can grow its partner network to over 100,000 with more than two million customers, which would increase its share in the UK energy market from 3% currently to 6%.

FY24 results: Record profitability and dividend

The FY24 results highlighted a robust performance, with record profitability and dividend announced. Due to the normalisation in the average Ofgem energy price cap in the year to £2,140 (FY23: £3,100), revenues fell 18% to £2.0bn (FY23: £2.5bn). However, driven by the growth in customers, service levels and the growing contribution from non-energy services, gross profit grew 16% to £355m (FY23: £306m), a margin of 17.4% (FY23: 12.4%). Despite increases in distribution, administration and bad debt costs, adjusted PBT was ahead of consensus estimates, up 21% y-o-y to £117m (FY23: £96m). For FY25, TEP is guiding to adjusted PBT growth of 6–9% on a reported basis, within a range of £124–128m. Shareholder returns remained a priority as, alongside a £10.2m share buyback in the year, management increased the FY24 dividend to 83p (FY23: 80p).

Valuation: Slight discount to long-term multiple

Due to TEP’s unique business model, there are no suitably similar listed peers. Consequently, we have looked at TEP’s current FY25e P/E multiple relative to its long-term historical average back to 2001. Despite a derating since 2021 following the UK energy crisis, on 14.8x FY25e P/E TEP is trading at a 7% discount to its long-term average multiple of 16.0x. We believe that with a growing market share within a more rationalised market, there is potential upside at its current valuation.

Consensus estimates

Year
end

Revenue
(£m)

Adj PBT
(£m)

Adj EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/23

2,475.2

96.2

99.2

80.0

17.6

4.6

03/24

2,039.1

116.9

109.0

83.0

16.1

4.7

03/25e

1,820.7

126.1

117.9

85.7

14.8

4.9

03/26e

1,966.3

138.3

129.9

88.4

13.5

5.1

Source: Company-compiled consensus.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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