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TalkTalk swings to profit on fibre growth

The group added 605,000 more fibre broadband customers
June 11, 2020

TalkTalk’s (TALK) headline adjusted cash profits climbed 9.7 per cent to £260m in FY2020, supported by its fibre broadband customer base which grew by more than a third. The group sold its Fibre Assets Business to CityFibre for £206m in March, pushing it to profit after a £5m pre-tax loss last year. More importantly, increased fibre penetration contributed to the group’s lowest ever monthly churn figure in the final quarter at 1.04 per cent, as customers had access to faster and more reliable broadband. 

IC TIP: Sell at 95p

While the telecoms group has not been severely affected by coronavirus, lockdown has meant that TalkTalk engineers have not been able to visit customer premises. Management noted that this, on top of clients being hesitant to switch in case they lose connectivity, has led to lower cross additions. 

Elsewhere, the closure of third party overseas call centres has reduced the group’s overall call handling capacity. TalkTalk customers however have been able to interact with the provider digitally, which could help to accelerate its move to a digital first service model. The group said that it would not be returning to pre-covid contact centre agent levels. 

Factset provides consensus forecasts of EPS of 5.44p and pre-tax income of £77m for March 2021, against 5.30p and £60m in FY2020

TALKTALK (TALK)   
ORD PRICE:95pMARKET VALUE:£ 1.09bn
TOUCH:93-99p12-MONTH HIGH:125pLOW: 67p
DIVIDEND YIELD:2.6%PE RATIO:7
NET ASSET VALUE:35p*NET DEBT:£954m
Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.8414.00.215.9
20171.78706.110.3
20181.65-100.0-10.34.0
20191.63-52.82.5
20201.5713113.42.5
% change-4-+379-
Ex-div:09 Jul   
Payment:07 Aug   
*Includes intangible assets of £700m, or 61p a share