Telecom plus upgraded to 'sector perform' from 'underperform' by RBC

Utility group Telecom plus was upgraded to ‘sector perform’ from ‘underperform’ and had its target price raised to 1,050p from 850p by RBC Capital Markets on Friday.

RBC said it believes the company, which supplies gas, electricity, landline, broadband and mobile services, will see its price competitiveness improving over coming months due to recent rebound in energy prices.

“We increase earnings per share by 5-10% in 2019 and 2020, on stronger service growth.”

Telecom plus’s most common tariff remains 40% more expensive than the cheapest on the market, RBC noted. The uncompetitive energy tariffs stems from the terms of a 20-year supply contract the firm signed with Npower in 2013. The contract allows Telecom plus to purchase gas and electricity at a 14.5% discount to the average Standard Variable Tariff (SVT) but the company has to fund some metering and operational costs.

“Due to the recent bounce in commodity prices we believe the premium between the average SVT and the leading fixed price tariff in the market could fall 35% (or £130) to £220 in the next three months.

“This drop reflects lower commodity costs for avg. SVTs hedged over 18 months, but higher commodity costs for fixed tariffs which have no hedge. Today TEP’s cheapest tariff, 'Double Gold – Fixed', is 27% (or £217) more expensive than the cheapest on the market, but by Q4 2016 we believe it could be ~11% (or £90) more expensive. This change in pricing should help TEP’s Partners more easily sell TEP’s energy tariffs.”