Telecom Plus finals

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 final results today with revenue up 9.5% to £658.8m, they state that the relatively modest rise in revenue is due to much lower average energy consumption by domestic households during an exceptionally mild winter, although continued strong organic growth in the number of customers using their services (530,639 up 15%) and industry wide increases in energy and telephony prices last autumn did more than compensate for this. 

 

Adjusted profit before tax was up 25.3% to £44.6m and reported pre-tax up 5.8% to £36.6m.  EPS increased by 2.9% to 39.2p and adjusted EPS rose by 26.5% to 49.7p.  A final dividend of 19p was declared increasing by 5.6%, making 35p for the year up 12.9%.

 

Free cash flow for the year was a negative £22.9m compared to a positive FCF the year before of £17.7m.  The negative FCF and the ~£200m spent on the NPower deal caused the net cash of £0.8m last year to become a net debt of £53.6m after the £130m placing and rights issue.  The net debt position represents gearing of just 26% and is a comfortable 1.42x EBITDA, so perfectly manageable.  Although it should be recognized that cash flows will come under pressure over the next two years due to completion of the £20m refurbishment to their new headquarters office building this year, supporting the distribution channel with branded BMW Minis and Tablets and funding growing demand from customers for smartphones with no upfront costs. 

 

Management state that they remain comfortable with market expectations for adjusted pre-tax profits for the current year of £63m and expect to deliver a progressive increase in dividends as they continue to grow; although the rate of dividend increase will be tempered over the next few years, as they service and repay the £100m of debt borrowed in the autumn to part-fund the transaction with Npower.

 

A positive set of results bearing in mind the mild winter, but with the added risk of a higher leveraged business with some additional working capital and capex requirements over the next two years.  These risks are manageable if the business continues to grow and, in the current environment, there are probably few reasons why it should not.