AI Efficiencies And New Offerings Like Ultrafast Broadband Will Expand Future Market Presence

Key Takeaways

• Telecom Plus's multiservice model and innovation in product offerings aim to drive customer growth and enhance EBITDA per customer.
  
• Focusing on AI-driven efficiency and disciplined capital policy supports operating margins and earnings stability, appealing to income-focused investors.
  
• Telecom Plus faces revenue growth challenges due to competition, energy price volatility, rising costs, service bundling changes, and increasing industry bad debts.

Catalysts

Engages in the provision of utility services in the United Kingdom.

• Telecom Plus is focused on achieving double-digit growth, primarily via their unique multiservice business model and partner route to market, aiming to increase customer numbers by 10% to 15% annually. This is expected to enhance revenue.
  
• The company is investing in enhancing its product offerings, including launching energy-efficient EV tariffs and ultrafast broadband, alongside reintroducing its insurance products. This diversification is likely to improve EBITDA per customer and overall earnings.
  
• Telecom Plus is implementing AI and technology-driven efficiency improvements, expected to reduce administrative costs and improve operating margins, positively impacting net margins.
  
• A strategic focus on growing market share in sectors where they currently hold a smaller share, like insurance, shows potential for substantial revenue growth through diversification.
  
• Despite operational expansions, the company maintains a disciplined capital allocation policy, focusing on dividend growth. This financial prudence is likely to improve earnings stability and appeal to income-focused investors.

Telecom Plus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Telecom Plus's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 4.7% in 3 years time.
• Analysts expect earnings to reach £106.8 million (and earnings per share of £1.3) by about April 2028, up from £75.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.4x on those 2028 earnings, up from 18.0x today. This future PE is greater than the current PE for the GB Integrated Utilities industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Telecom Plus Future Earnings Per Share Growth

Risks

• Heightened competition in the energy market, with major suppliers actively seeking new customers and engaging in extensive advertising, may challenge Telecom Plus's ability to sustain its customer growth and maintain market share, potentially impacting revenue growth.
  
• The impact of energy price volatility, particularly the significant fall in energy prices, has affected profit growth, which was smaller relative to customer growth. Ongoing price fluctuations could continue to affect revenue and profitability.
  
• Temporary pauses in insurance sales and changes in customer preferences for service bundles have led to slower service growth relative to customer growth, which could hinder future revenue growth and diversification efforts.
  
• Rising admin costs per customer and the need for continued investments in technology and AI to enhance efficiency and customer service expose the company to margin pressures and increased operating expenses, which could affect net margins and overall profitability.
  
• Increasing bad debt levels across the industry, coupled with the challenge of maintaining high-quality customer service while reducing admin costs, pose risks to earnings and cash flow, potentially influencing Telecom Plus's financial stability.

Valuation

• The analysts have a consensus price target of £27.383 for Telecom Plus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £31.8, and the most bearish reporting a price target of just £24.35.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.3 billion, earnings will come to £106.8 million, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 6.4%.
• Given the current share price of £17.12, the analyst price target of £27.38 is 37.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.