Small Talk: Time to ring up Telecom Plus for a bargain buy

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The Independent Online

Investors looking for a stock trading at a bargain basement price should consider Telecom Plus. After two torrid years, the company's shares have lost 70 per cent of their value and have fallen below the radar of many investors. But a recovery looks to be on the cards.

Chris Mills, the shrewd small-cap specialist who runs Atlantic Value LLP fund, certainly thinks so. He has quietly built up a 4 per cent stake in the company. Telecom Plus, which provides electricity and gas as well and mobile, fixed-line and broadband services, has seen its shares drop from 400p in 2004 to close at 121p on Friday because of losses from the energy side of the business. It had failed to hedge its supply contracts and when prices soared it was locked into contracts to supply gas at too cheap a price.

But, in February, Telecom Plus managed to sell these contracts to Npower and has since returned to profitability. In fact, at its full-year results in June, it surprised the City by announcing a dividend once more.

Telecom Plus has a unique referral system for attracting new customers which is much less expensive than traditional advertising and marketing models. It also has a fully integrated customer services billing system, which means lower admin costs, and boasts a low "churn" rate of just 1.5 per cent compared with an industry average of 5 per cent.

KBC Peel Hunt, the group's broker, expects it to make a profit of £8.3m this year. By 2008, this should have risen to more than £10m, leaving Telecom Plus trading at just 10 times earnings, and making its stock worth a punt.

US interest fuels battle

The bid battle for fuel card operator Retail Decisions is in its final phase and the result is expected to be made public either this week or next. Small Talk hears that the winner of the three-way contest is likely to end up paying 200p per share for control of the company, which would value it at more than £150m.

American companies Wright Express, FleetCor and Comdata have all indicated an interest in buying Retail Decisions, which last year made a profit of £8m from handling cards issued by companies to lorry and van drivers to pay for fuel.

The group's chief executive, Carl Clump, has made presentations to all the bidders. It is being advised by merchant bank Lazard.

Retail Decisions was put into play in May when it received a bid from FleetCor, which is owned by private equity firms Bain Capital and Summit Partners, at 175p a share. This offer is believed to have been rejected.

City sources tell Small Talk there is also a chance of a private-equity-backed management buyout bid for the group alongside the interest from the US.

Wright Express operates the Universal Fleet fuel card in the US, while Retail Decisions runs ReD Fuel Cards in Europe and Motorcharge and Motorpass cards in Australia. Comdata, another fuel card operator, is part of the Ceridian Corporation.

Retail Decision shares have soared from the 10p level in March 2003 to close at 166.25p on Friday. Analysts expect the company to make a profit of around £11.5m this year, rising to £14m in 2007.

Snap gets in the frame

Just as Photo-Me International is in talks to take it private, the photo booth operator's biggest rival is about to make its debut on the stock market. Snap Digital Imaging, Europe's second largest photo booth player, is owned by the holding company Consolidated Vending, which is expected to list on AIM within two months.

Snap, which made a profit of £300,000 last year on sales of £7.8m, will see its chief executive, Andew Coll, head Consolidated Vending. The holding company, which is backed by 3i and Arc Fund Management, hopes to lead a consolidation of the vending industry. It also owns Bfresh, an operator of 500 machines which stock miniature toiletries.

The vending machine business enjoys stable cashflows. The logic of bringing Snap and Bfresh under one roof (and others in the future) is that it helps to remove the key cost of having to run separate nationwide teams of engineers who service the machines. According to Consolidated's plan, every additional operator it buys will boost its earnings from day one as duplicate costs are removed.

Nettec's new found interest in resorts

Nettec, the AIM-listed cash shell that has been suspended since April, will return to London's junior market next month as a developer and operator of luxury holiday resorts. The group plans to do this via the reverse takeover of Newfound, an established player in the field.

Founded in 2001 by Brian Dobbin, Newfound already has one resort up and running in Canada and is planning a further two on the Caribbean islands of Nevis and St Kitts. Humber Valley, in the East of Canada, offers golf, spa, sailing and skiing on a 2,200-acre plot which so far boasts 380 privately owned properties. On completion, this figure will rise to 1,100.

Newfound does not just make its money from the sale of villas and apartments. It also offers concessions to hotels, restaurants and retailers on its site and property management services to those who wish to rent out their villas and flats.

On admission, the company, which will change its name to Newfound, is expected to have a market capitalisation of £80m after raising £10m of new money via the broker Collins Stewart. The cash will be used to develop Humber Valley further and to pay for the two new resorts planned in the Caribbean.

Nettec shares were suspended on 4 April as it started the process of negotiating the deal. Its chief executive, Edwin Richards, will become the finance director of Newfound, while Brian Dobbin will take the helm of the combined group.

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