Stock Purchase: Telecom Plus

Image result for telecom plus
On Monday 18th May, I purchased 148 shares in the FTSE 250 Fixed Line Telecommunications company Telecom Plus PLC. The share price at the time of purchase was 831.28p. The transaction cost including commission and tax was £1,248.39

I know more about Telecom Plus as a business than most of the other companies I own shares in because I used to work for them as a distributor. I’ll go into a little more detail than normal on this post, as some of you might be interested in learning more about earning or saving money with them. In full disclosure, I no longer work for them, use their services, or receive any commission from them. 

They’re a UK based company that offer utility services to households and small to medium sized businesses under the guise of Utility Warehouse. They offer the supply of fixed telephony, mobile telephony, gas, electric, and internet services.


Who Are Utility Warehouse?

Many people haven’t heard of Utility Warehouse. This might be due to the fact they don’t pay for advertising. They rely on quality service, low rates, and word of mouth to generate business. That’s understating it to be honest. They pay their employees, known as distributors, money for signing people up to the ‘Discount Club’ that is Utility warehouse. There’s a very low membership fee, but once you’ve joined you can benefit from low rates on all of the above. 

They’re a Network Marketing Company. As a distributor you make money in two ways: 
  1. You sell the utility options to friends, family and then anyone you can find. 
  2. You recruit distributors from friends, family and anyone you can find to sell the services.
You make money on every contract you sign up for as long as they’re a customer of yours. The more services they sign up to the more money they save, and the more money you make (win-win). The real bread winner is in the multi-level marketing plan, when you have distributors working for you. They get paid for the customers they bring in, and you get a cut of that. If they bring in distributors, and those distributors get customers, you get a cut of that, and it continues. 

Once you have a set number of personal customers, what’s known as ‘group customers’ (the customers from people you’ve recruited), and have recruited a set number of distributors to work for you, you move up to the next earning level. You receive a bonus for the promotion, and get the opportunity to earn more money on each customer/distributor.  


Life as a Distributor


Several years ago, back when I was in debt and poor with my money, I decided to join them as a distributor. I was recruited by one of my colleagues at work. I got very excited about the earning potential, which is large,  and didn’t give full consideration to the work itself. I paid my joining fee which was £200 at the time, I believe it’s £100 now. If you sign up a set number of customers by a certain date you get your money back plus a bonus. 

Granted you can do as much or as little as you like, and I opted to do a lot. I booked days off work for my regular job to knock on doors or people and businesses to win contracts. It wasn’t easy and I didn’t enjoy it. The company encourage you to talk about it to everyone you see, never mind know. You end up seeing everyone as a potential customer or ’employee’, and that process got old quickly for me. I followed the route that many do, where I decided to quit within a year. 

The lady that signed me up, still works in the office and she’s doing well with it. If she continues to make ground over the next 5-10 years, she could be in a position to leave her 9-5 for good. The people above her make £1,000’s of pounds a month, and the people in the company that have been doing it for 10+ years are on up to £1m a year, it’s no joke!

Personally, I’m so glad that I got out of it, as I see DGI, Kindle and frugal living as a more sure fire way to make money, and it’s more enjoyable. 


Why I Invested In Them

I worked for them back in 2010. The share price then was around 300p. At our weekly meetings the higher ranked employees would talk about buying shares in the company. Back then I was skeptical about investing so I stayed away. In November 2013 the share price topped out at 1,929p. Now that’s some growth in 3 years! 

Since doing DGI, I’ve always kept my eye on them as I’ve been intrigued about my previous employer. Perhaps you’ve experienced the same thing?

There dividend yield went from 7.4% in 2010, to 2% last year. Over the last 5 years the yield has averaged 4.24%. The company lowered the dividend in 2006, and aside from the held dividend I mentioned, they’ve increased it every other year. 

The dividends were held between 2010 and 2011, but including this 0% increase, they’ve managed to average a 15.2% growth rate over 5 years. Their most recent interim dividend has increased 18.8% on last year, which is excellent. 

Their dividend cover is less impressive. Over the last 5 years it’s averaged 1.25, which is below the 1.5 cover I usually look for. The most recent year has been covered by 1.45 which is better. I’d prefer this to be higher, but I’m happy to take that on. 

The companies P/E ratio has been very high over the last couple of years. In the last financial year it was as high as 35.4, and the year before it was 25.1. As of the close of play o 19th May, the P/E stood at a much more appealing 16.5

Three of the companies directors purchased £245,000 (each) in the companies shares back in January when the price dropped to 985p. This was a large vote of confidence, and I’ve been keeping a close eye on them since. It just so happens, there have been more appealing options present when I had capital to spend. 

When the number went below 20, it peaked my interest, and when a profit warning came out in Mid April 2015, I was very interested. The share has dropped from 1,272p on 1st January 2015 to as low as 730p in recent weeks. 

On the announcement of the profit warning (16th April), 5 directors bought shares at 801p, totaling over £1m. 

The companies adjusted earnings per share have remained very consistent, only dropping twice in 13 years! 

The companies revenue has also remained very consistent. It’s gone in one direction since 2001, up! Despite the profit warning there’s a huge amount of encouragement for Telecom plus. 

On the date of my Direct Line purchase, I have to confess to have typed in the ‘buy’ option for Telecom Plus, but I chickened out. The price on 6th May was floating around 770p, but I was concerned it might drop further. Knowing the sale of Catlin, would provide me enough capital to make another purchase in a couple of weeks, I decided to hold off. You win some, you lose some!
What do you think of Telecom Plus as an investment option? Have you heard about Utility Warehouse? Are you working for them? Or are you a customer?

0 Comments

  • UK Value Investor

    Reply Reply 20th May 2015

    Coincidentally enough I bought some shares in this company quite recently. It certainly has a very impressive track record and having read up on their approach to customer acquisition (i.e. network marketing) I tried to get Mrs UKVI to sign up as a distribution partner… but sadly she wasn't interested.

  • Dividend Drive

    Reply Reply 20th May 2015

    It is an interesting company which I have been cautiously watching on and off for a while. Your detailed description of how their business operates is fascinating and is not something I would have easily bumped into. So thanks for that as it is very relevant to how it may succeed in the future.

    I agree, it looks a pretty impressive company. I will put it back on my full watch list I think! Thanks for that.

  • diy investor (UK)

    Reply Reply 20th May 2015

    An interesting business model – good luck with the purchase, the share price has fallen back quite significantly in the past 18 months so be prepared for a bumpy ride! The Naked Trader, Robbie Burns is a big fan of this company – possibly his single largest portfolio holding.

  • Laura

    Reply Reply 21st May 2015

    Thanks for educating me on another FTSE company. I like the insight you provided and I may follow this company in the future, although I would prefer they paid a higher dividend.

  • Huw Davies

    Reply Reply 21st May 2015

    Hi John,

    Thanks for stopping by. Well that's a nice seal of approval for me. I think they're in a great position long term. Their revenue has continued to grow, and they've been hit like many other utility providers as of late, arguably more than most when you look at share price.

    I wish I had invested in them back in my distributing days. The dividends and capitals gains in that small space of time would have been greatly received.

    I wouldn't necessarily advise or discourage anyone from becoming a distributor. I didn't really enjoy selling and recruiting, but I do that in my day job so perhaps that's why. I think Kindle Publishing presents a faster, easier and more enjoyable income opportunity. In month 5 of doing it, I estimate to earn approx £350 for the month. Utility Warehouse is currently paying less than that to my colleague who's been doing it for over 5 years.

    Cheers
    Huw

  • Huw Davies

    Reply Reply 21st May 2015

    Hi D2,

    My pleasure. I certainly don't have the insight into other companies like UW. I work with 3 people in my office that are currently distributors, and I have probed them for updates, but like the sales people they are they tend to keep things very positive.
    They have Terry Wogan fronting their website now, and I think there's a lot of kudos for having a person like that pushing the product. They previously had French and Saunders (not sure if they still do?).

    That's the great thing about this community. We get to share from each other's insights and learn more and more about investing. I enjoyed reading through your recent assessment of Legal and General.

    I glad you got some value from the post. That means a lot!

    Cheers
    Huw

  • Huw Davies

    Reply Reply 21st May 2015

    Thank you DIUK. You're right, the drop is huge. There aren't many that have dropped to that degree in the same time frame and yet have significant backing in their numbers.

    I've heard of the Naked Trader, but I have to confess to not reading his work. That oce again sounds like a nice vote of confidence.

    Thanks for stopping by!
    Huw

  • Huw Davies

    Reply Reply 21st May 2015

    Hi Laura,

    I'm glad you enjoyed it, you're very welcome.

    I believe it's in an investors interest to widen their scope as much as possible. There are dozens of great investments out there at any one time, and there are dozens of over priced ones too. The more know about each one, the better informed we are to make the right call.

    I'm very happy with anything above the FTSE All share/ FTSE 100 tracker dividends, and 4.28% currently represents that. There's also a great opportunity to benefit from capital gains in my opinion.

    All the best
    Huw

  • weenie

    Reply Reply 22nd May 2015

    Hi Huw
    I'd heard of Utility Warehouse before (not sure from where) but didn't know of Telecom Plus. Interesting to see you pick up another FTSE 250 stock. Good luck with these and also the Direct Line shares you bought recently.

  • Anonymous

    Reply Reply 25th May 2015

    I wish you well on Telecom Plus, but I have followed this share for several years (not a current holder) and would rather be short than long currently. I think you will see nearer to £6 sooner rather than later – hopefully as a long term holder it turns round.

    Customer growth fell from 16% last year to 11% with new forecast of just 6% next year. No of services grew 10% vs 19% last year. No FY revenue per average customer guidance was given and that means it was probably bad. This number fell for the first time since 1999 in Mar2014, by 4%. I calculate it fell by 5% yoy in H1 to Sep 14.

    Telecom said it added 6000 partners but did not specify the time frame and we do not know the net number. There is massive churn. Judging by figures given at the interim stage partner growth has slowed to some 3% (in prior two years it at 11% p.a.)

    The house broker cut FY2016 numbers by 26% (54.9p from 74.1p). But the house broker adds back supply chain amortisation – this is erroneous. Deduct 11p (net of tax as this is tax deductible according HMRC) so real 2016 EPS will be 44p

    Also changed auditors which can at times be viewed negatively.

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