Research: Consumer
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.
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Telecom Plus |
Unique proposition drives customer growth
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Utilities |
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24 June 2024 |
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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.
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Consensus estimates
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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Research: TMT
On 12 June IP Group announced that Garrison Technology, one of its key deeptech holdings, is being acquired by US-based cybersecurity company Everfox (formerly Forcepoint Federal), which has been Garrison’s partner for several years. IP Group highlighted that it would receive a cash consideration upon deal completion for its 23.6% stake in Garrison and that the valuation of Garrison implied by the deal will not result in any meaningful uplift to last carrying value. Based on this, we understand that IP Group will sell its stake at a price, which is broadly in line with the £31.6m fair value as at end-December 2023 (or c 2.7% of its end-2023 NAV). This is an indication of IP Group’s prudent approach to valuing the business (it had been valued in line with its £15.5m funding round in 2023). Further exits in line with or above last carrying value should assist a narrowing of the current wide discount to NAV of c 61%.