Cable & Wireless Worldwide (CWW) saw half-year results meet lowered expectations and, surprisingly, given the group's July profit warning, public sector income was robust rising 3 per cent to £138m.
But CWW managed to spend its way through all of its £214m cash profits, with outflows of working capital (£41m), exceptionals (£23m), long-term incentive plan (LTIP) payments (£9m) and pensions (£3m). Add that capital expenditure of £118m and finance costs of £21m, and CWW posted a £1m cash outflow for the half. That's better than the £25m outflow last year but dismal all the same, especially since other telecoms companies, such as BT, Vodafone and Alternative Networks, are awash with cash. This adds to uncertainty over the long-term sustainability of the dividend. CWW will make a 1.5p a share payout for the half year and is expected to make a 3p a share final payout.
During the first half, IP & Data turnover grew 1.4 per cent to £493m, while Hosting & Applications was up 14 per cent at £121m, but Voice fell 7.3 per cent to £509m. Broker Evolution forecasts full-year underlying pre-tax profits of £105m rising to £140m in 2012 with EPS of 4p and 5.3p respectively (from a loss of £94m and -3.6p in 2010).
CABLE & WIRELESS WORLDWIDE (CW.)
|ORD PRICE:||69p||MARKET VALUE:||£1.83bn|
|DIVIDEND YIELD:||4.3%||PE RATIO:||na|
|NET ASSET VALUE:||52p*||NET DEBT:||2.5%|
|Half-year to 30 Sep||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 24 Nov
Payment: 27 Jan
*Includes intangible assets of £918m, or 35p a share
Cashflow is a major concern because the forecast 6.5 per cent yield is the main reason to own the shares. If investors start to question the likelihood of future payouts at this level - as currently looks possible - the shares will dive. We update our advice to sell.
Last IC view: Good value, 78.5p, 26 May 2010