Telecom Plus

 As the UK’s only fully integrated multi-service provider, Telecom Plus derives significant ongoing operating efficiencies by spreading a single set of overheads across multiple revenue streams it receives from its customers. The business has a unique route to market that uses a highly motivated network of around 48,000 self-employed partners and word of mouth to drive customer numbers.

Trading under the brand name ‘Utility Warehouse’, the customer proposition is compelling. The company bundles together customers’ home services - energy, broadband, mobile and insurance - into one, great value, monthly bill, saving customers time and money by providing all their home services in one. The company has a unique buying contract with npower that works on the basis of a circa 15% discount to the price cap, so effectively moves with the cap. This means the company’s profit increases as the price increases. We are obviously in unprecedented times and so account will need to be taken of any government decisions to protect households from price increases, but the Investment Manager believes that the outcome should be broadly unchanged for Telecom Plus.

General public perception of utility markets and providers is changing, and switching suppliers to achieve short-term savings has become just one factor to be considered, alongside the stability and continuity of supply (especially in relation to broadband). The energy supply market has also gone through fundamental change, with half of the suppliers ceasing to trade last year and Ofgem recognising that a reset is required. Now, Ofgem will no longer allow businesses to be funded by customer deposits. There will be far greater regulatory scrutiny of new market entrants - a marked contrast to the previous ‘free-for-all’ regime. Telcom Plus’s business model should be ideally placed to succeed in these market conditions.

Against this backdrop, the Investment Manager believes that the business is at the start of a material upgrade cycle. Telecom Plus has a 2.5% share of UK households, so there is the potential for considerable growth. Market share gains are likely to be organic and achieved by leveraging the partner network.

As a sizeable supplier of electricity and gas to households throughout the UK, the company has a significant role to play in the transition to net zero. Recognising the challenge ahead, management is fully committed to playing an active part in reducing the company’s impact on the climate. Management’s ambitions and commitments align with the UN Sustainable Development Goals.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.