We tipped shares in utility and telecom provider Telecom Plus (LSE: TEP)as a buy back in June last year. The shares were just over 700p then. They are 1,800p now. Unfortunately, we recommended taking profits in January at 890p. This has been a spectacularly bad call.
The company continues to perform very well and is paying bigger dividends. Its Utility Warehouse brand is proving to be popular with customers. The more services they buy, the more money they save. Many of them are buying gas, electricity, broadband and phone bundles. A generous cash-back card that can be used at places like Sainsbury's is an added sweetener and gives Telecom Plus a competitive edge against the big six energy suppliers.
Last week the company announced that it was stumping up £218m to buy 770,000 gas and electricity customer accounts from Npower. At the same time it signed up to a cheaper long-term power deal, which will make its business much more profitable and increase earnings per share by a decent amount. This looks to be a good deal for the company.
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Telecom Plus will continue to pay out a large chunk of its profits to shareholders and is promising to pay a 35p dividend this year. At 1,800p that gives the shares a prospective yield of just under 2%. This suggests that the shares are richly valued just now. But long-term shareholders should probably sit tight.
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