Telecom Plus Share Blog – Interim Results Year Ending 2020

Telecom Plus have now released their interim results for the year ending 2020.

Revenues have increased when compared to the first half of last year due to a £41M growth in customer management revenue and a £1.3M increase in customer acquisition revenue.  Depreciation was up £481K and other cost of sales increased by £34.2M to give a gross profit £7.7M higher.  Distribution expenses were up £483K and admin expenses increased by £5.6M which meant the operating profit was £2M higher.  Finance expenses were up £332K and tax charges increased by £1M to give a profit for the period of £15.2M, a growth of £730K year on year.

When compared to the end point of last year, total assets declined by £23.6M driven by a £38.4M decrease in prepayments and accrued income and a £5.6M fall in the energy supply contract, partially offset by an £11.4M increase in cash, a £4.3M growth in property, plant and equipment, a £2.9M increase in other receivables and a £2M growth in software.  Total liabilities also declined during the period as a £10.1M increase in bank loans, a £5M growth in payables and a £5M increase in finance leases were more than offset by a £34M decline in accrued expenses and deferred income and a £5.8M decline in current tax liabilities.  The end result was a net tangible asset level of £44.9M, a decline of £1.2M over the past six months.

Before movements in working capital, cash profits declined by £2.8M to £31.3M.  There was a cash inflow from working capital and after tax payments increased by £5.9M the net cash from operations was £27.2M, a growth of £3.2M year on year.  The group spent £3M on intangible assets, £1.6M on finance leases and £794K on property, plant and equipment to give a free cash flow of £22M.  Of this, £21.1M was spent on dividends and £1.3M on interest.  The group took out £1.6M of new finance leases and a net £9.5M of new borrowings to give a cash flow of £11.4M and cash level of £35.6M at the period-end.

During the period the growth in revenue exceeded the increase in service numbers mainly due to seasonally normal gas consumption and higher energy prices.  Gross margin fell slightly, reflecting a change in service mix with an increasing proportion of revenue derived from lower margin energy services due to a rise in the Ofgem price cap. 

Admin expenses rose by £5.5M due to growth in the volume and range of services provided; higher technology costs relating to updating their core CRM systems, developing new tools to support the partner network and enhancing information security; the acceleration of smart meter rollout; higher regulatory costs; and inflation linked increases in staff pay. In addition they continue to invest in strengthening the senior management team to support an acceleration in their current organic growth.

The number of members and services for the period increased by 10,267 and 92,519 respectively and both were marginally impacted by the one-off migration of their Cash Back card base from Mastercard to Visa.  The quality of the membership base continued to improve with a further rise in the proportion of new members taking all core services which now represent over 25% of the residential membership base. 

The annualised churn for the period increased marginally to 12.5%. This reflects higher energy prices from April, partially offset by the improving quality of the membership base. 

The boiler installation business will be loss making during the period but its performance has been improving steadily and it is on track to make a modest positive contribution in the full year. 

In a broadly flat market overall the group’s telephony and broadband market share increased.  The penetration of mobile telephony in the membership base now exceeds 40% for the first time, reflecting a doubling in the number of members over the past five years. The board believe there is scope to achieve significant further growth over the coming years.

The group are steadily building a home insurance book with renewal rates running at around 95%. Overall policy numbers increased by 50% in the first half to almost 22,000, assisted by the launch of a new home and boiler care product in March and they anticipate adding a similar number of policies during the second half. 

Going forward their competitive position has recently improved following the reduction in the energy price cap which will help drive an acceleration in growth over the second half of the year.  Over the last ten weeks they have seen a significant increase in the number of new partners joining the business which is an encouraging lead indicator for the rate of future customer growth over the coming months.  The board expect to deliver full year profits of £60M to £65M, in line with guidance. 

At the current share price the shares are trading on a PE ratio of 39.1 which falls to 23.6 on the full year consensus forecast.  After an 8% increase in the interim dividend the shares are yielding 3.6% which increases to 3.8% on the full year forecast. Net debt at the period-end was £40.7M compared to £37M at the same point of last year.

Overall then this has been a steady period for the group.  Profits increased but the net asset level declined somewhat.  Although the operating cash flow improved, this was due to working capital movements and cash profits declined with the free cash level just about covering the dividends.  Operationally the group seems to be doing well with increasing numbers of members and some helpful regulation but the shares don’t look cheap with a forward PE of 23.6 and yield of 3.8%. 

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