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Results better than expected & first significant dividend increase for years-little TEP became a blue chip
What an outstanding RNS. Lots of good news. With the increased dividend (actual and projected), amid the proposed changes to dividend tax, I need to shift the holding into an ISA.
Similar thoughts. I was surprised by opportunity presented by the recent drop but as my largest holding, didn't want to get more overweight. Steady dividends which for several years had been re-invested (a holder since 2002) , so all good. One issue is dividend cover, but this news should increase the headroom. Some profit-taking is inevitable after the outstanding progress this week, but not by me.
This is one of my long term holdings so short term volatility is not an issue. But in all my years of holding Telecom + I have never seen it rise so fast. The market was obviously caught out by their update. As a customer for many years as well it was clear to me me that, because of their all round offer, they would attract new customers during economic hardship. It may fall back after rising 520p in two days but potential investors might consider buying if it does.
Surprised there isn't any recent commentary. Was taken aback by today's rise. Just a blip or what?!
Never mind the long term debt, look at the profit history since birth. I bought at 7.5p per share.
Marl
Hi Leapfrog, My dividend cover figures are based on the adjusted EPS which excludes the share incentive scheme charges and licence amortisation. I still think the dividend cover is very thin. Cash isn't only needed to fund growth. It can also be used to pay down debt and, as interest rates rise, the cost of financing that debt will rise.
At 31 March 2021, TEP had £89.4m of long term borrowings (it also had cash of £25.1m) and £2.4m of financing costs. In the absence of any rate cap etc. it does not seem unreasonable to assume that TEP's financing costs could double from 2021 levels over the next 12 months as the BofE interest rate rises. You've also got to factor in that the corporation tax rate will rise from 19% to 25% from 1 April 2023 onwards. These, together with the likelihood of additional bad debt costs, are all good reasons why TEP should not be increasing its dividend and should, if anything, be considering reducing its dividend so that it can pay down debt at a faster rate.
I am hanging on, not selling. This company has resisted the war-blown onslaught, proving its worth as a defensive stock, and I like to imagine the bounce back. I'm happy to stay because of the long history of consistently gathering customers and winning awards, and this continues according to the latest reports.
I guess you understand their stange financing? TEP has a very unique approach that no one has so far seriously tried to replicate (which may or may not be a good sign). Its earnings are heavily impacted by a non-cash amortisation charge of ~£14m per year. This is the depreciation of a ~£300m licence with Npower to supply to TP's customers at attractive rates.
So in cash terms the dividend is covered, although even then the company still has a high payout ratio as it doesn't need to retain a lot of capital to grow.
At some point the licence will need renewing (it's a 20 yr licence that will run out ~2034), but this will probably be paid with debt and new equity, same as for the last one.
I estimate that TP can sustainably grow the dividend by around 4-5% and over time, and if earnings grow faster than I've figured, then cash flows will continue to cover the dividend.
Hope this helps.
Having bought in February 2021 and sold in April 2022, making a capital/dividend retrun of about 33%, I can't complain but I can't help but think that TEP is way overvalued (again).
I've been here before. I originally bought TEP at c357p back in early 2005 and sold at c1,260p in mid-2013 (missing out on the subsequent rise to c1,900p later that year). So, from a timing perspective (at least), I don't have pedigree ;-)
I'd like to think that TEP has legs and that there may be an opportunity to get back in but I'm concerned about the dividend cover and the PE ratio.
Even on an adjusted basis, by my estimates, the dividend cover hasn't exceeded 1.11x for the last six years (including 2022 which I'd estimate at about 1.07x based on the most recent RNS). There really doesn't seem to be any headroom to increase dividends further and they probably ought to be considering reducing them to c40p (1.5x dividend cover) if they were being prudent. I'm not saying that TEP will reduce its dividends (it seems likely that TEP will be looking to increase them again for 2023) but such a high payout doesn't give TEP any financial cushion (particularly if they see a significant increase in bad or slow paying debts as a result of the energy price rises).
My concern with the PE ratio is that TEP is an eclectic mix of businesses that don't make it a prime acquisition target. Sure competitors might (in more normal times) want to cherry-pick its customers but I can't see a utility company or (say) a telecoms company ever wanting to acquire the whole company. TEP makes sense as a standalone business but not as an acquisition target and, as such, does not warrant any buy-out premium. It's currently trading on a PE ration of c38x (on an unadjusted basis) and c27x (on an adjusted basis). The adjusted PE ratio is likely to drop to c26x when the 2022 results are published and, if we were to assume that EPS was to increase by (say) 20% (in line with the expected customer growth rate) in 2023, it would appear to be trading on a PEG of c1.3.
Anybody care to discuss? I'll be honest. If I'd done this analysis back in February last year, I'd probably not have bought and would have therefore missed out on a c33% return but this share does have a history of getting ahead of itself (2013) before reality sinks in and the share price hits the doldrums.
All reviews of this company are favourable and expecting 1700+ this year, then today there is a 3% SP drop. With the very considerable rise in energy price, the price cap was raised today - in line with expectations, should say.
Perhaps it is expected that energy custmers will become more price sensitive. TEP is more about convenience than price.
We will have to see how in reality TEP's customer base reacts.
On Director sells ' he only sold 'em because the institutions went to him & said look 'can we buy them?' so that sort of selling, that's quite interesting'
Andy Brough interview with PIWORLD
Andy Brough mentions Telecom Plus #TEP in the latest PIWORLD interview at 37m44s
Watch the video here: https://www.piworld.co.uk/education-videos/piworld-interview-with-andy-brough-markets-lessons-learned-in-2021/
So much for govt ingerence. "Good luck with that", you'd have advised them!
Where did that leave Telecom Plus? It had another strategy, not short-term switch-and-burn, a strategy it initiated 20 years ago. Its supply side is to buy bulk long term. Its customer side is to offer all services in one convenient bill, perhaps more expensive than if you managed things yourself, but you sign up and have nothing more to trouble you. It pulls in new customersnot with screaming headline offers, but through a network of 40,000 "partners", ie word-of-mouth.
In the current crisis, this strategy has left it as "last man standing".
This means an unexciting but competently run company providing a stable income (divi) stream. Not of much interest to the trader I wouldn think.
THE RESULTS
Revenues up 6%, customers up 0.5%, total services (energy, broadband, mobile) up a fraction. Earnings down a fraction (settlement with Ofgem cost £1m). Mostly from TEP's supply contract with e.on (elec and gas). Interim dividend 27p no change yielding 1.27% at 1446p. Then add expected 30p Final would give 3.94% forward yield.
THE STORY
The little profit utilities make goes out in divis and repairing or upgrading the network. SSE or NG as examples.
But govt thought utility customers needed better deals so the utility companies were put into competition with new intermediaries who were buying wholesale and selling retail. Competition pushed pricing into the short term with switching and even utilities Co.s themselves making special offers.
All well and good? Except that now offers began to appear at below cost, with new customers being walked up to a more sustainable price.
After complaints, the regulator again intervened, thinking a price cap reviewed bi-annually would solve this.
Along came sky-high gas prices (quite why is another fascinating story) and these new intermediate suppliers came tumbling like nine pins.
So much for govt ingerence. "Good luck with that", you'd have advised them!
Where did that leave Telecom Plus? It had another strategy, not short-term switch-and-burn, a strategy it initiated 20 years ago. Its supply side is to buy bulk long term. Its customer side is to offer all services in one bill
TEP is always dead quiet on the news and chat front.
I'm just kicking myself for not loading up on more at 10.30.
They just announced the div, it's gone up a lot. I'll buy again after the ex div date, as it'll drop. Hoping for 12xx agian.
Very quiet in here. Looks like a great investment to my mind. GLA
I'm sticking with them and DRIP the dividends. Great company.
I decided to sell the TEP shares I.purchased earlier this year at around the 1020p mark. When TEP drops to around 1000p it's always worth buying. The SP could well climb into the 1400p range from here & for those holding i hope it does. I've cashed in my profits & added more IMB for the double 48p dividends over the next 3 months.
GLA
Any idea why this is down? Or due to general market movement?
Half-yearly results in mid November - keep your eyes peeled for those
Britain's Utility Warehouse, the country's ninth-biggest independent energy supplier, hopes to nearly double its customer base....
Glad I held onto this. Hopefully get near the 14-15 soon. GLA
Looks like the shorters going ge a burning .
I did say this bounces between 10 -15...... and we are now a 1/3 of the way there !! in a week..............B