Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.
What: Telecom Plus (LSE: TEP), the utility supplier that serves more than half a million customers, was the top gainer on the FTSE All-Share this morning, up 10% on rising profits and revenues.
Adjusted pre-tax profit rose 25% to £44.6m while revenue grew by 10% to £659m. The firm’s steadily growing customer base (up 18% on average compared to last year), as well as financial benefits from the transaction with Npower, were the main reasons profit increased at much faster rate than revenue.
So what: Investor sentiment is bullish, and Telecom Plus said it remains “comfortable” with market expectations for a 50% jump in profit for the current year.
The Npower deal, agreed last autumn, secures access to wholesale energy markets on improved commercial terms for a guaranteed 20 years. This has allowed Telecom Plus to offer more competitive retail tariffs than those offered by the ‘Big Six’ energy firms.
This hedges Telecom Plus against political risk — margins shouldn’t come under pressure in the event a Labour government introduces a price freeze.
Now what: The full year dividend increased 13% to 35p per share (yield 2.3%), covered 1.4 times by earnings.
While Telecom Plus remains “committed” to a progressive dividend policy, over the next few years the rate of increase will be tempered due to £100m of debt from the Npower deal.
In the last five years the shares have surged over 400%.
