Telecom Plus (TEP) £19.40

Market cap: £1.55 billion

On the face of it, Telecom Plus (TEP) is a dull utility business. So far, so boring. Dig a little deeper, however, and you’ll find a genuine FTSE 250 diamond in the rough.

This is a true income and growth company. Many businesses make such claims but there are surprisingly few that pull it off and have the track record to prove it. For example, over the past 15 years, shareholders have received 779p per share in dividends, up to and including last year’s (to March 2025) 94p payout.

This is during a spell where the share price has traded, by and large, in an uptrend from below 400p to all-time highs of £24.90 (2022). Total returns, according to Morningstar data, imply shareholders have made 14.7% per year from share price gains and dividends since 2011. That’s staggeringly consistent and nearly twice the total return (8% a year) of the Morningstar index benchmark.

That valuable income stream is growing well above inflation, too. Analysts as a whole are forecasting increases of 9% and 7% to this year’s and next year’s payouts, while the team at Berenberg estimate a dividend bounty of around 330p per share will be paid out to shareholders over the next three years.

WHAT IS TELECOM PLUS?

Trading under the Utility Warehouse banner, the FTSE 250 company runs a unique ‘multi-utility’ model which bundles core energy services like gas and electricity with services such as home phone, mobile, broadband, and more recently home and contents insurance and boiler cover. These services are frequent award winners with independent consumer champions such as Which?, Defaqto, Moneyfacts and Uswitch.

The more services you take, the larger the savings you can make, and there’s a cashback card too, with partners like Sainsbury (SBRY), Boots, Aldi, Primark and B&Q, with savings totted up each month and knocked off your single, multi-service utility bill.

Last year, Utility Warehouse onboarded a 15% increase in net new customers (12.6% organic) to 1.16 million, to which it supplies more than 3.39 million services. Chief executive Stuart Burnett told investors the firm anticipates another 15% increase in new customers this year.

Marketing and customer acquisition costs are kept down by using its customers as sales partners, rewarding them when friends and contacts sign up and making  them feel part of a growing ‘family’, many of whom become shareholders too.

DOUBLING THE CUSTOMER BASE

Management has ambitious plans to double customer numbers ‘over the medium-term,’ and why not, it’s a model that’s been working for years, and it’s been paying off for investors.

Since 2020, CAGR or compound annual growth rates have been around 16% for revenue and EPS (earnings per share) compared to the single-digit growth of other utility companies, a sure-fire sign that its unique customer/partner model works. Free cash flow typically runs ahead of earnings.

With the current heatwave sweeping Britian, winter might seem a long way off, but as usual it will be here before we know it and when the weather turns colder, damper and darker, household energy bills will quickly become a big talking point as happens every year.

With more stable wholesale pricing compared to recent years, we expect a lot of account switching, and that’s usually good news for Utility Warehouse and Telecom Plus, as householders look for ways to save on their bills.

This, in our opinion, makes now a good time to invest, ahead of the British winter, taking advantage of the recent drift in the share price. The stock has declined around 7% since early June as investors chased the shares higher ahead of anticipated solid results, which were published 24 June.

Berenberg analysts noted the results ‘confirmed strong delivery, with double-digit customer growth, alongside record profit and a record dividend.’

We believe Telecom Plus is a unique growth business with attractive income too; the forward yield is over 5%. Returns on capital and equity have averaged 21% and 25% since 2020, while on a current rolling 12-month PE (price to earnings) multiple of 14.9 times, according to Stockopedia, the shares are a great option to add to any portfolio. 

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