Telecom Plus PLC (LON:TEP) shares dropped as the UK multi-utility supplier warned that full-year profit would be towards the lower end of its guidance range due to the impact of a warm winter and an energy price cap.
The group, which owns Utility Warehouse, expects adjusted pre-tax profit of £56mln for the year, down from £54.3mln the previous year.
READ: Telecom Plus says dynamics of the energy market are moving in its favour
The government’s energy price cap and warmer than usual weather over winter reduced energy revenue in the quarter.
Telecom Plus also incurred “modest losses” related to its acquisition of a 75% stake in Glow Green, a supplier and installer of domestic gas boilers and warranty/care plans, as well as the introduction of a boiler and home cover insurance service.
Customer numbers rose by 4% to 635,039 and service numbers increased by 8.2% to 2.5mln.
Net debt increased to £38mln from £11.2mln due to higher working capital requirements associated with changes to the phasing of certain energy industry payments, increased investment in technology, smart meter roll-out costs and a share buy back in July 2018.
However, underlying cash flow "remained strong" and the company intends to pay a total dividend per share of 52p, up 4% on the prior year’s payout.
Profits to recover in 2020
For the 2020 financial year, the company expects adjusted pre-tax profit of £60mln to £65mln and a 10% increase in the total dividend to 57p per share, supported growth in customer numbers and improved margins.
Customer and service numbers are expected to rise 5% and 10%, respectively, in 2020.
Margins will be supported by a renegotiated purchasing agreement with npower.
Shares fell 2.9% to 1,446p.
Peel Hunt maintains 'buy' stance
Peel Hunt kept a 'buy' stance and target price of 1,540p on the stock.
On the agreement with npower, the broker said it "proofs the relationship following the end of the price cap so that Telecom Plus can respond to changes in the energy supply market".
Peel Hunt sees partner recruitment as a key indicator of future customer growth.
The number of new partners joining each month was running consistently at between 600 and 800 in the first half, before accelerating to around 1,000 per month during the autumn. More recently, Telecom Plus has seen the run-rate increase to more than 1,200 per month.
Peel Hunt said this gives "credibility" to customer growth estimates.