They'll be more than a few retail investors out there wondering where today's full year results from multi-utility supplier Telecom Plus (TEP) leave them. It's barely two months since the company stunned the market with a shock profit warning and discovered a dirty great £11 million bad debt black hole in its balance sheet.

The overriding message today, however, is far more positive, albeit with a couple of caveats. Competition has been fierce in the energy supply market over the past year or more and the Big Six have, arguably, been using their buying power to slash tariffs, putting independents under extreme duress. This has sparked watchdog Ofgem and the Competition & Markets Authority (CMA) to launch a huge investigation, the results of which we're likely to find out before the end of June. But veiled threats about enforced Big Six break-ups look unlikely to come to anything, and much of the gossip we are hearing suggests a rather limp outcome.


FinnCap's Andrew Darley reckons there's probably one last round of tariff cuts en route, but beyond stability should return. And that bodes well for independents longer-term. Let's face it, the Big Six are mistrusted at best, despised at worst by most consumers, and the increasing trend for independents to take market share looks set to continue, even accelerate.

'We think that whatever the official outcome [of the CMA study], the raising of consumer consciousness resulting from coverage of the findings will be a further boost to customer switching to independent suppliers,' remark analysts at Cantor Fitzgerald. Of course, that doesn't make Telecom Plus risk-free, there are other independents making solid gains amid this current climate of aggressive pricing, First Utility among them.

TEP HQ cut for web

Yet the underlying operating performance of Telecom Plus remains exceptional, even if past growth expectations have had to be modified. But its low-cost customer acquisition strategy coupled with its unique scope to offer telecoms services as well as gas and lecky remains compelling.

A final thought, a forward price to earnings (PE) multiple of 14.3, based on FinnCap forecasts and a 847p share price (after today's 3.2% rise), may still represent something of a premium to many competitors, yet the payout yield of 5.4% remains attractive in a largely income starved market. And with plans to up future dividends by 15% until the payout ration returns to the long-run standard of around 80%, this story remains compelling for the long-term.

Issue Date: 23 Jun 2015