Telecom Plus interims & acquisition

TELECOMPLUSPLC

Trading as the Utility Warehouse, Telecom Plus PLC provides a range of services to households and small to medium sized businesses. The Company is engaged in the supply of fixed telephony, mobile telephony, gas, electricity and Internet services through independent distributors. I have a holding in my growth portfolio (epic code: TEP).

 

Telecom Plus announced their interim results today together with details of an acquisition and placing of approximately 8.8m shares (~12.4% of current issued shares) at 1475p.

For the six months to 30 September revenue was up 17% to £245.8m, profit before tax (excluding share incentive scheme charges) was up 10.1% to £13.7m and adjusted EPS up 11.5% to 15.5p. Statutory EPS was up 6.1% to 14p and the interim dividend increased by 23% to 16.0p, although some of this increase is due to TEP moving to a more even split between the interim and final payments.

Free cash flow was £9.9m compared to £11.2m last year and the net cash at the beginning of the year of £0.8m was reduced to a net debt position of £1.4m, following £12.7m pay-out for the final dividend.  

Commenting on the outlook for the full year: "...The Board has expressed confidence that we will deliver record turnover, profits and earnings per share for the full year (excluding the benefit or any other impact of the acquisition), notwithstanding the significant and growing amount we are investing each month in expanding our customer base; this is reflected in the 23% increase we are making in our interim dividend payment and by our stated intention to pay a total dividend of 35p for the full year..."

 

Also being announced was that TEP are to acquire Electricity Plus Supply Limited and Gas Plus Supply Limited from Npower Limited, a subsidiary of RWE AG, for £218m.

 

As part of the Acquisition, they will enter a new 20 year energy supply agreement with Npower which will substantially increase the energy margins available to TEP and enable it to provide even more competitive tariffs to its customers.

 

The details of the consideration is that £196.5m is payable on completion in cash and £21.5m deferred for three years.

 

TEP will fund this from a combination of a firm placing a placing and open offer and a drawdown of approximately £100m from new debt Facilities entered into with Barclays.

 

The Firm Placing and the Placing and Open Offer are fully underwritten and will raise approximately £130m of gross proceeds at an issue price of 1475p.

 

The Firm Placing will raise £100m and the placing and open offer will raise £30m at a 1 new share for every 35 existing shares.

 
Following completion of the Acquisition, the gross margin that TEP earns from supplying energy to  customers will immediately increase by 4.25% and Npower will assume responsibility for certain metering costs currently borne by TEP.

Management state that PBT for 2013 would have been £9.3m higher if this deal had been in place then.  Using their average tax rate of 22% and the increased shares in issue after the placings, then a pro-forma EPS for 2013 would be ~43.2p an increase of 13.4% over the 38.1p reported.
Not surprisingly management state that the acquisition will be materially earnings enhancing in the first full year of ownership.

The market responded well to this and was up 15.5% to 1739p in early morning trading.