Shares in multi-utility supplier Telecom Plus (LSE: TEP) slumped by as much as 13% this morning following the release of its results for the year to 31 March. Due to falling energy prices and slowing customer growth, revenue fell by 0.6% versus the previous year. And while the company delivered another year of growing profits, Telecom Plus is set to face strong headwinds.
Aggressive competition
Notably, the company faces growing competitive pressures in the retail energy market, as many of its larger competitors have recently launched aggressively-priced introductory deals in order to protect market share. Things are looking better in the telecoms market, as it is seeing an increase in revenues because of higher prices and its customers taking up more services, in particular fibre broadband.
Thanks to adjusted pre-tax profit growth of 7%, the company remains committed to its progressive dividend policy. It raised dividends by 4.3% to 48p per share, which gives it a current yield of 3.9% for the full-year.
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Looking ahead, the company said it expects to deliver further growth as it rolls out new services and strengthens its competitive market position by leveraging its personal approach to looking after its members. Management has also been encouraged by the results from the soft launch of its home insurance product. It is confident that the addition of insurance would boost cross-selling opportunities and also, in itself, become a significant source of revenues as its steps up marketing for the new product.
“In the meantime, we expect to continue growing our customer base over the coming year, with a target increase of 5-10% in the number of services we supply, and a further increase in our dividend,” said chief executive Andrew Lindsay.
Still, Telecom Plus shares are pricey at 21.2 times forward earnings. And although I reckon the company still has more growth ahead of it, I’m avoiding the stock until valuations come down a bit more.
Double-digit growth
Also reporting today was cloud computing company Iomart (LSE: IOM). Revenue for the year to 31 March increased by 17% to £89.6m, while adjusted pre-tax profits rose by 11% to £22.4m.
The Glasgow-based group delivered another year of double-digit revenue and adjusted earnings growth. However, this failed to satisfy investors as shares in Iomart had fallen 5% to 322p at the time of publication.
It’s good to see the company’s Easyspace segment return to organic growth last year, as registrations had declined a little last year, and were a drag on its overall performance in 2015/16. Cashflow from operations was also significantly higher, with an increase of 22% to £37.8m, and this enabled management to raise its dividend payout for this year by 90% to 6p per share.
Looking forward, City analysts expect Iomart to increase its bottom line by 8% over the next two years, which would represent a modest slowdown in growth. Still, its shares seem reasonably priced, with Iomart trading at 17.8 times forward earnings this year, and 16.5 times its expected earnings in 2018/19.
