Stock Purchase: Telecom Plus

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On Monday 18th May, I purchased 148 shares in the FTSE 250 Fixed Line Telecommunications company Telecom Plus PLC. The share price at the time of purchase was 831.28p. The transaction cost including commission and tax was £1,248.39

I know more about Telecom Plus as a business than most of the other companies I own shares in because I used to work for them as a distributor. I'll go into a little more detail than normal on this post, as some of you might be interested in learning more about earning or saving money with them. In full disclosure, I no longer work for them, use their services, or receive any commission from them. 

They're a UK based company that offer utility services to households and small to medium sized businesses under the guise of Utility Warehouse. They offer the supply of fixed telephony, mobile telephony, gas, electric, and internet services.

Who Are Utility Warehouse?

Many people haven't heard of Utility Warehouse. This might be due to the fact they don't pay for advertising. They rely on quality service, low rates, and word of mouth to generate business. That's understating it to be honest. They pay their employees, known as distributors, money for signing people up to the 'Discount Club' that is Utility warehouse. There's a very low membership fee, but once you've joined you can benefit from low rates on all of the above. 

They're a Network Marketing Company. As a distributor you make money in two ways: 
  1. You sell the utility options to friends, family and then anyone you can find. 
  2. You recruit distributors from friends, family and anyone you can find to sell the services.
You make money on every contract you sign up for as long as they're a customer of yours. The more services they sign up to the more money they save, and the more money you make (win-win). The real bread winner is in the multi-level marketing plan, when you have distributors working for you. They get paid for the customers they bring in, and you get a cut of that. If they bring in distributors, and those distributors get customers, you get a cut of that, and it continues. 

Once you have a set number of personal customers, what's known as 'group customers' (the customers from people you've recruited), and have recruited a set number of distributors to work for you, you move up to the next earning level. You receive a bonus for the promotion, and get the opportunity to earn more money on each customer/distributor.  

Life as a Distributor

Several years ago, back when I was in debt and poor with my money, I decided to join them as a distributor. I was recruited by one of my colleagues at work. I got very excited about the earning potential, which is large,  and didn't give full consideration to the work itself. I paid my joining fee which was £200 at the time, I believe it's £100 now. If you sign up a set number of customers by a certain date you get your money back plus a bonus. 

Granted you can do as much or as little as you like, and I opted to do a lot. I booked days off work for my regular job to knock on doors or people and businesses to win contracts. It wasn't easy and I didn't enjoy it. The company encourage you to talk about it to everyone you see, never mind know. You end up seeing everyone as a potential customer or 'employee', and that process got old quickly for me. I followed the route that many do, where I decided to quit within a year. 

The lady that signed me up, still works in the office and she's doing well with it. If she continues to make ground over the next 5-10 years, she could be in a position to leave her 9-5 for good. The people above her make £1,000's of pounds a month, and the people in the company that have been doing it for 10+ years are on up to £1m a year, it's no joke!

Personally, I'm so glad that I got out of it, as I see DGI, Kindle and frugal living as a more sure fire way to make money, and it's more enjoyable. 

Why I Invested In Them

I worked for them back in 2010. The share price then was around 300p. At our weekly meetings the higher ranked employees would talk about buying shares in the company. Back then I was skeptical about investing so I stayed away. In November 2013 the share price topped out at 1,929p. Now that's some growth in 3 years! 

Since doing DGI, I've always kept my eye on them as I've been intrigued about my previous employer. Perhaps you've experienced the same thing?

There dividend yield went from 7.4% in 2010, to 2% last year. Over the last 5 years the yield has averaged 4.24%. The company lowered the dividend in 2006, and aside from the held dividend I mentioned, they've increased it every other year. 

The dividends were held between 2010 and 2011, but including this 0% increase, they've managed to average a 15.2% growth rate over 5 years. Their most recent interim dividend has increased 18.8% on last year, which is excellent. 

Their dividend cover is less impressive. Over the last 5 years it's averaged 1.25, which is below the 1.5 cover I usually look for. The most recent year has been covered by 1.45 which is better. I'd prefer this to be higher, but I'm happy to take that on. 

The companies P/E ratio has been very high over the last couple of years. In the last financial year it was as high as 35.4, and the year before it was 25.1. As of the close of play o 19th May, the P/E stood at a much more appealing 16.5

Three of the companies directors purchased £245,000 (each) in the companies shares back in January when the price dropped to 985p. This was a large vote of confidence, and I've been keeping a close eye on them since. It just so happens, there have been more appealing options present when I had capital to spend. 

When the number went below 20, it peaked my interest, and when a profit warning came out in Mid April 2015, I was very interested. The share has dropped from 1,272p on 1st January 2015 to as low as 730p in recent weeks. 

On the announcement of the profit warning (16th April), 5 directors bought shares at 801p, totaling over £1m. 

The companies adjusted earnings per share have remained very consistent, only dropping twice in 13 years! 

The companies revenue has also remained very consistent. It's gone in one direction since 2001, up! Despite the profit warning there's a huge amount of encouragement for Telecom plus. 

On the date of my Direct Line purchase, I have to confess to have typed in the 'buy' option for Telecom Plus, but I chickened out. The price on 6th May was floating around 770p, but I was concerned it might drop further. Knowing the sale of Catlin, would provide me enough capital to make another purchase in a couple of weeks, I decided to hold off. You win some, you lose some!

What do you think of Telecom Plus as an investment option? Have you heard about Utility Warehouse? Are you working for them? Or are you a customer?

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