By 1977 the band were performing their own three-chord pop punk material, which was performed alongside cover versions at concerts, primarily at The Casbah, where the band began to perform in February. The Undertones had occasionally earned money at venues where they had performed throughout 1976, but these gigs at The Casbah were the first performances for which the Undertones were paid on a regular basis, as performing at The Casbah earned the group up to PS40 a week. This inspired the band to write and rehearse further material, as a means of remaining a popular act at this venue. By mid-year, the concerts the Undertones performed would include the song "Teenage Kicks", which had been written by guitarist John O'Neill in mid-1977. The gigs performed at The Casbah gave the Undertones increased confidence in their musical ability, and in June 1977 they performed concerts outside Derry for the first time, supporting a Dublin punk group named The Radiators from Space.  In March 1978, the Undertones recorded a demo tape at Magee University in Derry and sent copies of the tape to various record companies in the hope of securing a record deal, but only received official letters of rejection. The band had also sent a copy of their recordings to influential BBC Radio 1 DJ John Peel, requesting he play the songs on his radio programme. Peel replied to the band, offering to pay for a recording session in Belfast. On 16 June 1978, the band recorded their debut four-song EP "Teenage Kicks" on a budget of only PS200. The EP was engineered by Davy Shannon at Wizard Sound Studios, Belfast - and was released on Belfast's Good Vibrations record label. The title song became a hit with support from John Peel, who considered Teenage Kicks his all-time favourite song, an opinion he held until his death in 2004.  Seymour Stein, the president of Sire Records - in London on business - heard John Peel play "Teenage Kicks" on BBC Radio 1 and became interested in the band. Stein sent a London-based representative named Paul McNally to Derry to discuss a record deal with the band. McNally saw the band play live in what would ultimately prove to be their final performance at The Casbah on 29 September 1978. The following day, McNally convened with the Undertones to discuss a record contract. Three members of the band signed the proposed contract on this date, with the understanding that Feargal Sharkey and Michael Bradley would discuss negotiations to the contract with Seymour Stein in person in London.

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