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Stock of the week: Telecom Plus

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Helal Miah, investment research analyst at The Share Centre, picks utility services provider Telecom Plus as stock of the week.

Energy companies have been dominating the press over the last couple of weeks following the Prime Minister’s plan to introduce price caps on standard variable tariffs. Telecom Plus – a fully integrated provider of a wide range of utility services – received a boost from the proposal.

Under the Utility Warehouse brand, Telecom Plus provides homes and small businesses throughout the UK with home phone, mobiles, broadband, gas and electricity. The number of services taken by each customer continues to rise. Indeed, one of the key areas of growth for the group is the number of new customers who sign up for ‘gold’ membership, which involves taking all five of its services. Take up has been around 50% of new members, which in turn improves the visibility and quality of earnings.

Going forward, the company has plans to provide car, home and boiler insurance along with water supply. Specifically, in the year ahead, the group is targeting an increase of 5-10% in the number of services provided.

The CEO has highlighted that the group is currently operating in difficult market conditions, but investors should acknowledge that he also recognised that this environment will not persist indefinitely. Moreover, management are confident that when wholesale commodity prices trend higher, customer growth rates will return towards past levels.

This is a FTSE 250 company that offers a progressive dividend policy, which is helped by a solid balance sheet and cash flow. We currently recommend Telecom Plus as a ‘buy’ for higher risk investors with a balanced portfolio.

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