UK telecoms utilities provider Telecom Plus LON:TEP is emerging as one of the darlings of the UK stock market this autumn and is still rated a buy, according to latest analysis. With energy prices already running high in the UK, the company’s exposure to the gas, power, and boiler cover space is also attractive.
The FTSE 250 constituent reported revenue up 52% year-on-year to GBP 562m from GBP 371m last week, over the six months to 30 September. Pre-tax profits were up 46%. Customer numbers have soared as Telecom Plus continues to compete effectively in a tough market, with thousands of Brits defecting to it from other service providers.
The company said it will continue to offer UK customers savings on services like broadband, mobile and insurance, as well as cashback on their daily spend. With many Brits strapped for cash going into the Christmas season, this looks like an offer that is going to remain attractive.
Still time to buy into the Telecom Plus story?
Investors in Telecom Plus shares have seen some punchy returns over the last year, when the stock broke out of a trading range sitting under £15 to head north to nearly £25. We continued to see intense buying in the shares last week. Stock has rallied from around £17.50 in September.This is starting to make Telecom Plus look a bit more expensive, with a PE ratio of over 43x. EBITDA margin is 6.3%. But it still may be worth getting in at these more elevated levels, and here’s why.
Deshe Analytics rated the stock a buy on Monday, citing impressive results. Growth, value and income factors combine to paint a picture of a well-planned, balanced effort from management which is continuing to generate exciting growth for the company. The stock scores well in a number of areas with a superb balance sheet and strong growth in return on equity. Net cashflow is up 81% and free cashflow per share is also impressive.
Report card: why Telecom Plus outperforms
Telecom Plus shines when you compare it with its peers in the sector. Many investors have been attracted into the likes of National Grid LON:NG., Centrica LON:CNA, or SSE at times when energy prices are high and investors are looking for good defensive plays with some growth characteristics. Telecom Plus blows these out of the water when it comes to peer analysis.
Deshe Analytics rates Telecom Plus an 80/100 on its balance sheet. National Grid scores 61/100, with Centrica shares 63/100. Telecom Plus also does well on the income side, at 76/100, versus SSE which is struggling at 49/100. Indeed, Deshe rates SSE an underperform.
“Overall, Telecom Plus’ critical balance sheet metrics appear to signal strong support and a high likelihood of positive growth going forward,” Deshe said in its report. “Telecom Plus reported a positive trendline in their cash and cash equivalents metrics. This performance is significantly more impressive than its peers and competitors. It suggests that their stock price has room to grow to reflect its actual intrinsic value. Therefore, its cash and cash equivalents movement earned a score of 91.”
Doing a deeper dive into the UK utilities sector, it is hard to find a stock in this space which looks healthier on the balance sheet side. United Utilities LON:UU. and Severn Trent LON:SVT score well on cash and equivalents, and Pennon Group LON:PNN may be worth keeping an eye on for the future, but overall, despite its expensive shares, Telecom Plus still looks like the start performer.
