Shares in Utility Warehouse owner Telecom Plus (LON:TEP) tumbled to a 10-year low after the group unveiled a new strategic plan. The firm aims to double multi-service subscriber numbers by FY31, but heavy investment means earnings will fall sharply this year.
Major investment required
Telecom Plus unveiled an ambitious plan to double its multi-service subscribers to one million by March 2031. The firm aims to increase adjusted pre-tax profit to £175 million with EPS growing faster than sales as margins expand.
Return on capital employed is targeted at more than 30% by the end of the period. Meanwhile, the firm plans to distribute surplus capital of around £100 million, with at least half in the form of dividends.
However, achieving these goals means spending around £55 million per year across the business. That investment will help improve the multiservice proposition and the digital customer experience, build the brand and scale the Partner sales channel.
As a result, in year one of the plan adjusted pre-tax profit is expected to be between £80 million and £90 million. That compares with an FY26 pre-tax profit of £132 million, implying a 30% to 40% drop in earnings.
Over the last three decades, Telecom Plus has built an enviable platform business including a hugely popular multi-service offering. It now wants to build on that and double its subscribers, but that inevitably requires investment in its infrastructure.
The market reaction suggests shareholders weren’t up to speed on the plans and have focused on the up-front cost not the end result. That said, investing £265 million to grow profits by less than £50 million does seem sub-optimal to us.
Also, slashing the final dividend from 57p to 12p per share hasn’t exactly endeared the company to investors. Having previously been a stellar performer, today’s tumble to a 10-year low is a reminder of how quickly fortunes can change.
Read the press release here: https://www.telecomplus.co.uk/investor-information/regulatory-news
