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TalkTalk walks the walk

TalkTalk saw strong gains in TV and corporate data last year, but its growth hasn't come cheaply.
May 15, 2014

TalkTalk ’s (TALK) hefty investing in sales and TV drove a 64 per cent slump in operating profits last year, but investors may not be too fussed. The low-cost telecoms provider - a product of Carphone Warehouse’s demerger in 2010 – has attracted over 1m customers to its TV service since it launched 18 months ago, far outpacing its peers.

IC TIP: Hold at 294p

Its primary audience is ‘freeview’ households who don’t subscribe to a premium service such as Sky TV. But that hasn't stopped TalkTalk from selling extra services: over 28 per cent of its TV customers buy paid-for content monthly.

Its other operations saw gains too. For instance, corporate data sales climbed 10 per cent year on year during the second half - having inched up about 1 per cent in the first six months. TalkTalk also added over 100,000 new customers to both its mobile and high-speed-broadband businesses.

Unsurprisingly, its success hasn’t come cheaply. TalkTalk’s sales and administrative costs leapt more than a third to £318m, while operating expenses rose 8 per cent to £427m. That and the big dividend payouts raised net debt by more than a quarter to nearly £500m.

Broker Barclays expects adjusted pre-tax profits of £164m this year, giving EPS of 13.9p.

TALKTALK TELECOM GROUP (TALK)
ORD PRICE:294pMARKET VALUE:£2.8bn
TOUCH:293-294p12-MONTH HIGH:329pLOW: 213p
DIVIDEND YIELD:4.1%PE RATIO:95
NET ASSET VALUE:36p*NET DEBT:143%

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20101.711-0.34.7
20111.8573.95.6
20121.712715.69.0
20131.712211.310.4
20141.7313.112.0
% change+3-75-73+15

Ex-div: 02 Jul

Payment: 01 Aug

*Includes intangible assets of £620m, or 65p a share