Why the Telecom Plus share price could keep rising

The Telecom Plus share price has delivered big gains over the last year. Roland Head explains why he thinks there’s still more to come.

| More on:
A pastel colored growing graph with rising rocket.

Image source: Getty Images

The Telecom Plus (LSE: TEP) share price has risen by 25% over the last year, as this energy supplier has emerged as a big winner in its market, following the failure of more than 30 of its UK rivals.

Legendary investor Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked”. That’s what happened last year with UK energy suppliers. It wasn’t pretty. But for me, it was a useful reminder of just how good the Telecom Plus business really is.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Customers up 20%

Telecom Plus is probably better known under its trading name of Utility Warehouse. This business buys utility services such as electricity and gas wholesale. It then resells them to domestic customers through a workforce of self-employed agents.

One of the secrets to the group’s strong financial performance is its long-term energy supply deal with German utility giant Eon. This deal is allowing Telecom Plus to sell energy profitably below the UK government price cap.

It’s a tremendous competitive advantage in the current environment, as it makes UW pricing very attractive for people who need a new energy deal.

Telecom Plus says that during the six months to 31 March, customer numbers rose by 20%, on an annualised basis. Growth is expected to continue at this rate in 2022/23. I think that’s pretty impressive for a business with over 700,000 customers.

What could go wrong?

Market conditions at the moment are pretty unusual and will (hopefully) return to normal at some point. When this happens, Utility Warehouse could face tougher competition on pricing.

Another potential concern for me is that long-time executive chairman and major shareholder, Charles Wigoder, is planning to step down to a non-executive role in July. Wigoder has been gradually reducing his stake in the company and now only owns 9%.

Personally, I’m pretty relaxed about Wigoder’s decision to step back. Co-CEO Andrew Lindsay has worked with Wigoder since 2007. He looks like a safe pair of hands to me.

Would I buy Telecom Plus shares now?

I’ve followed Telecom Plus for several years and have really come to like this business.

Wigoder has kept the group’s focus on its core business and resisted the temptation to diversify. He’s also taken care to keep the dividend safe – the payout has not been cut since 2006.

In my view, this is a well-run business, with strong finances and an impressive track record of growth.

After last year’s gains, Telecom Plus shares now trade on 22 times 2022/23 forecast earnings. That’s not especially cheap, but the group’s strong cash generation means that the shares still offer a useful 3.9% dividend yield.

Perhaps more importantly, I think this quality business is likely to continue growing, even if market conditions normalise. I’d be happy to buy Telecom Plus shares at current levels. I think there’s a good chance they’ll keep rising.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A person holding onto a fan of twenty pound notes
Investing Articles

3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 80%, this growth stock is a ‘no-brainer’ buy

Growth stocks have faced a torrid time recently. However, after falling 80% since its highs, this FinTech looks too cheap…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett is pouring money into stocks! Here’s a FTSE 100 pick I think he’d buy

Warren Buffett has been investing in several US stocks recently. Here's a FTSE 100 stock I think he'd also be…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon…

Read more »

Girl showing thumb up, excited about upcoming shopping
Investing Articles

Is now a good time to buy Tesco shares?

After a strong rally last year, the Tesco share price has stalled. Roland Head gives his view on investing in…

Read more »

The BT Tower looming above London's skyline
Investing Articles

3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

2 cheap FTSE 100 dividend shares! Should I buy?

These two FTSE 100 dividend shares offer terrific value for money, on paper. Should I load up on them today,…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

5 steps to target a monthly £300 passive income

With his eyes on a target of monthly passive income, here are five steps our writer would take to try…

Read more »