Alice ventures into the wastes of North London for the Telecom Plus AGM.
Like popstars, companies can acquire a fanatical following, albeit on a much smaller scale.
Telecom Plus (LSE: TEP) has acquired a fanatical following: an elderly couple made the trip to its AGM from north Wales to the new head office on Edgware Road, north London. They had only missed one AGM since Telecom Plus listed on AIM, that was when the husband celebrated his 80th birthday and that was SIX years ago.
The wife was in a wheelchair, and liked to chat, while the husband was frail and could hardly see. The wife was navigating so I wondered who drove! Fingers crossed a neighbour volunteered to spend a day out in north London.
I was impressed with the willingness of the directors to speak to the elderly couple on a one-to-one basis before and after the meeting. I think they are also distributors. So top marks to Telecom Plus for customer relations.
Some colour
Telecom Plus trades as Utility Warehouse Discount Club. It "provides over 200,000 households throughout the UK with home phone, mobile phones, broadband, gas and electricity."
From the latest accounts: "Telecom Plus works in partnership with 27,000 independent Distributors who attract customers by personal recommendation, thus avoiding the need for expensive national advertising. Distributors receive a revenue share from each customer they introduce, which encourages them to focus on gathering creditworthy customers who take multiple services from us."
There are 69m shares. At a price of around 300p the market cap is £205m. The key individual is The Hon. Charles Wigoder, the CEO, who joined the company in 1998. He holds 16m shares.
Some figures
Financial highlights for the year ended 31 March 2009:
- Turnover up 49% to £278.3m (2008: £186.5m)
- Profit before tax up 34% to £22.5m (2008: £16.8m)
- Year-end net cash balance of £25.4m (2008: £30.3m)
- EPS up 37% to 24.2p (2008: 17.7p)
- Total for the year of 17.5p per share (2008: 14p)
Some history
Telecom Plus was the darling of the stock market for several years because it grew at a phenomenal rate. Nigel Wray picked up a shareholding at some stage, and the share price headed ever upwards.
In 2005/6, Telecom Plus caught a cold when volatile wholesale energy prices and an unhedged strategy resulted in a loss. The share price, which had touched 300p, fell back to close to 100p. Since then Telecom Plus has embraced hedging, courtesy of an agreement with nPower. Since mid-2007, it has staged a remarkable comeback, touching 380p last year, before drifting downwards. Notwithstanding the excellent recent results, the shares have not ticked back upwards again. This could be due to the drop in profits expected in the current year. The reasons for the drop are:
- funding the rapid growth in distributors and services provided (costs are written off upfront);
- a reduction in financial income (Telecom Plus has a strong balance sheet – see below);
- reduced energy prices; and
- increased overheads as a result of moving into new HQ.
As 'compensation' to long-term shareholders, the directors are expecting to recommend a total dividend of 22p for 2009/10.
You are as old as you feel
I was impressed with the chairman, the 73-years young Peter Nutting. He was courteous, able to cope with our friends from north Wales, and was able to get through 15 resolutions reasonably quickly.
What he did not do was read through the interim management statement announced at 7.00am on the day of the AGM, so for those who are acquiring the AGM bug, remember to check RNS announcements before you leave the house.
The statement was reasonably upbeat -- the CEO was 'delighted to report a further period of strong organic growth'. There was no mention of management or market expectations. Charles Wigoder, possibly disingenuously, said that there are no market expectations, although the finance director did confirm afterwards that a number of brokers follow the company, including KBC Peel Hunt, Telecom Plus's NOMAD. Digital Look has forecasts of 19.5p for this year and 26.7p for the year after.
Mid-life crisis
As mentioned above, Charles Wigoder is the key director and shareholder. I thought he would dominate matters, but he was happy for the chairman to run the meeting, to answer most of the questions and allow the results speak for themselves. After the meeting I was pleased to hear from a couple of non executives that they had the utmost respect for him.
The chairman will no doubt retire in the medium term. Telecom Plus has recently appointed a chief operating officer -- Andrew Lindsay -- who has one of the most impressive CVs I have come across. All of 32 years old, good-looking, a rowing Olympic gold, MBE, ex-Goldmans Sachs. He has a big equity stake in Ryness, an electrical retail chain. No girls, I don't know whether he is married or not. The finance director is 30 and only joined the board this February. So a new young team is being groomed to take on more responsibility.
Andrew Lindsay did not say a word during the AGM, so I will assume he is the strong silent type. The finance director certainly knew his way around the accounts.
Answering three important questions:
- Can the CEO sell ice cream to Eskimos? He seems to be very hands on and very knowledgeable, not flash although there was a sports car in the car park with the registration number CW2.
- FD, Clark Kent or John Major? Seemed to be more Clark Kent yesterday than John Major.
- Non executives, would they step in front of a bullet for the shareholders? Impressive CVs and demeanour, particularly when discussing my favourite subject, auditing. One exception is Richard Michell, who missed yesterday's meeting, and only attended 8 of 14 board meetings last year. He needs to do better in my opinion.
Good news, bad news
Telecom Plus had cash deposits of £25m as at the end of March, down from £30m a year earlier. I was amazed to learn that Telecom Plus only deposits money with Barclays, which does not seem sensible, as banks are notorious for screwing faithful customers.
The CEO assured me that Telecom Plus gets a good deal. Given it pays only £15,000 annual remuneration to the chairman, £12,000 to two of its non executives, and only £50,000 in audit fees, it would appear to be a company that looks after its pennies. The CEO's remuneration for last year was less than £220,000.
In the next couple of weeks, Telecom Plus will hear whether International Power will exercise its call option to buy Telecom Plus's 20% stake in Oxford Power. The stake is valued at circa £15m. Good news with regard to cash flow but, given Oxford Power is profitable, and the banks, even Barclays, are paying about 0.1% on their deposit accounts, the transaction will be earnings dilutive if the call option is exercised -- I bet the share price will tick up on the news.
Summary
For a company that has 27,000+ distributors, the turnout of less than 10 private investors was a little disappointing. Nevertheless, the board seems to have a good combination of youth and experience. It will be interesting if the directors can now manage efficiently the next step up in the life of Telecom Plus, from being a small growth company to a medium-sized growth company.
The P/E ratio is currently high, but the dividend yield is high too. It could re-rate in the medium term if the handsome rower begins to pull his weight and the CEO continues to make the right strategic decisions.
Finally, I have been 'persuaded' to turn up on Friday at the AGM of Orsu Metals (LSE: OSU). Next week I am very much looking forward to Cyprotex's (LSE: CTX) AGM on Tuesday.
Discussion board poster AliceInWonder1 is a serial AGM attendee and is keen to encourage other private investors to take a more 'hands on' approach with their holdings. He hold shares in Telecom Plus.
