Telecom Plus tanks after profit warning on gas debtor writedown

After a review of unbilled gas debtors the FTSE 250 group decided to write down a total of roughly£11m of debt on its balance sheet that had accumulated over the past seven years.

This, it said, related to higher levels of leakage and theft within the gas distribution network than it had previously anticipated.

As a result, for future years, full provision against leakage and theft will reduce gas revenue by 2-3%. Last year gas was 37% of group revenue.

Telecom Plus now expects adjusted pre tax profit for the just completed full year to be £52m-53m, down from forecast of nearly £63m, while 2015 is now predicted to generate £54m-£58m PBT versus prior estimates of almost £65m.

Otherwise, the company reassured that it expected to raise its total dividend 14% to 10p with a 21p final dividend, and that, despite slower profit growth being expected for 2016, it intended to extend the payout for that year by 15% to 46p.

Full year numbers for 2014 looked in line with expectations, with customer numbers for the year to end-March ahead by almost 11% to 0.59m, slightly better than hoped, and total service numbers were up by 207,416 to over 2.1m

Broker FinnCap noted that Telecom Plus’s share price has suffered recently in the expectation of the effect of the decline in gas and electricity pricing and the uncertainty surrounding the impact of legislative changes relating to the general election, which had seen downgraded forecasts earlier this year.

"While the downgrades are obviously negative to sentiment, we have long valued TEP as a dividend stock, and dividend guidance remains in line with unchanged estimates," analyst Andrew Darley wrote.

"With a higher risk profile now apparent as the company reveals what we expect to be its performance nadir, we reduce our 12-month target price to 1,300p (from 1,530p), based on a 3.5% target yield."