UK Edition
After nearly five years of holding Telecom Plus we have a paper capital gain of around 25pc, plus 268p in dividends per share that double our return, and last week’s interim results offer plenty of scope for believing the next five years could offer a similarly pleasing bounty – if not more.
Britain’s energy market can be held up as an example of how price caps can create as many problems as they purport to solve but Telecom Plus looks capable of coming out of the mess smelling of roses.
The “multi-utility”, which provides energy, broadband, mobile and insurance to households and small businesses, is profitable and cash generative and has limited debt, so it is no surprise to see the firm attract both new partners who can sell its wares and new customers who are looking for a reliable supplier.
In the first half of the FTSE 250 firm’s fiscal year customer numbers rose slightly to 660,700 and the total number of services supplied to just over 2m, as customers continued to take more than one service from it.
Thanks to the chaos in the energy market Telecom Plus added another 15,000 customers in October alone and management is now looking forward to double-digit percentage growth in the second half of the year as more rivals go broke and leave consumers looking for a more reliable service elsewhere.
Churn is already low – just 0.7pc of energy customers left for another provider in the first half – and going lower thanks to the collapse of those rivals that were offering energy prices that proved to be unsustainable. Existing customers are staying put and new ones are joining.
This all gives Telecom Plus’s partners the chance to sell other services, another development that helps to underpin co-chief executive Andrew Lindsay’s guidance for the fiscal year to March 2022 of pre-tax profits of £60m and a dividend of 57p per share, compared with £56.1m and 57p in the 12 months to March 2021.
A material advance in profits and cash flow and an increase in the dividend are on the cards for March 2023, thanks to higher energy prices and customer growth.
The only real snag is the punchy forecast price-to-earnings ratio, at least on a statutory as opposed to adjusted basis, and this column has erred before by mistaking security for safety and overpaying as a result. Equally, cautious views on names such as Croda, Clarkson and Spirent just because they were “expensive” did us no good at all, as continued strong trading and the absence of any bad news meant that they stayed that way and if anything got dearer still.
Telecom Plus could emulate them, especially as growth in customers and sales looks poised to accelerate, and the combination of financial and operational solidity and a prospective dividend yield of 3.9pc may appeal to income seekers too, particularly as the payout seems primed to start to grow again after two flat years. Telecom Plus continues to send out all the right signals. Hold.
Questor says: hold
Ticker: TEP
Share price at close: £14.60
Update: Clinigen
September’s full-year results did not do much to support our buy case for Clinigen as slower-than-expected sales of leukaemia drug Erwinase and a drop in hospital-based cancer treatments owing to Covid-19 prompted fresh earnings downgrades.
We warned in our initial review in June that profit alerts could come in threes and September’s took the tally to two. Investors in the unlicensed medicines specialist may therefore need to brace themselves, but cash generation was good, the services division performed strongly and management has started to focus capital on this unit while simplifying the products operation.
Moreover, activist investor Elliott now has exposure to the stock via derivatives. The formidable money manager has yet to make any public pronouncements on what strategy it feels Clinigen’s board should be pursuing, but Elliott is not known for letting the grass grow under its feet and it is encouraging that the activist shares our view that there is value to be had in the stock. Keep buying.
Questor says: buy
Ticker: CLIN
Share price at close: 597.5p
Russ Mould is investment director at AJ Bell, the stockbroker
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