As we might expect from a steady, cash-generating, dividend-paying share, Telecom Plus (LSE: TEP) has recovered well from the recent stock market crash. And today’s final-results report confirms the business hasn’t suffered many ill effects from the pandemic crisis.
The FTSE 250 stalwart owns the Utility Warehouse brand. And the company describes itself as “the UK’s only fully integrated provider of a wide range of competitively priced utility services spanning the communications, energy, and insurance markets”.
The dividend is up
The unique selling angle is the firm’s customers – which it calls members — can benefit from the convenience of a single monthly statement, “consistently good value across all their utilities and exceptional levels of service”.
But not only is the selling angle a bit different, so is the promotional model. Telecom Plus doesn’t advertise, but relies instead for its growth on word-of-mouth recommendations from its army of “satisfied” members and partners. I reckon there’s something old-fashioned about that approach (in a good way). And the strategy wouldn’t look out of place in many smaller mum-and-dad-type family businesses.
The figures are good. In the full year to 31 March, revenue rose almost 9% year on year, and adjusted earnings per share moved 4.7% higher. The directors expressed their approval and optimism about the outlook by slapping 9.6% on the full-year dividend.
Chief executive Andrew Lindsay said in the report, the “record” results demonstrate the “resilience and strength” of the business model. He’s pleased with “how well” the company’s partners and employees have adapted to the Covid-19 environment. The effects of the pandemic on the business have been “limited”.
Counter-cyclical qualities
Lindsay reckons the business can behave counter-cyclically. It achieves that because partners (which act as salespeople) can earn money by promoting the money-saving advantages of the service. Indeed, in tough economic times, the attractions of the service can appeal even more to potential new members (read ‘customers’).
He reckons the firm’s partners are getting used to social distancing and growth is returning to pre-lockdown levels. Meanwhile, Telecom Plus has little debt, which contrasts with the billions borrowed by energy and utility companies. The energy and utility sectors are attractive for their defensive qualities. But I reckon Telecom plus, with its agency business model, provides a real alternative for investors.
Indeed, the company can benefit from the cash-generating nature of dealing in energy and other utilities. But isn’t operating under a weight of borrowings that could squash shareholder returns if things go wrong.
I think the share’s recovery from the recent stock market crash demonstrates its suitability for a long-term portfolio. We may have missed the coronavirus bottom with this share, but I reckon it remains attractive. Indeed, with the share price near 1,438p, the historical dividend yield sits just below 4%.
