If you were one of the 4,545 customers of TalkTalk Telecom (TALK) who remained in the dark after the 2015 data breach, you might think twice about renewing your contractual arrangements. The broadband provider failed to inform them that their personal data, including bank account details, had been compromised. A year later, a malware attack left thousands of customers without internet access after TalkTalk failed to adequately secure its routers. And earlier this month, it emerged that punters no longer on a fixed term deal could see their bills go up by as much as 11 per cent. Dale Carnegie would be proud. The question is the extent to which this largely self-inflicted reputational damage has leeched through to the investment case.
It doesn’t appear to have done any undue damage as far as customer acquisition and retention is concerned. TalkTalk’s consumer business continues to benefit from the general scramble for fibre products, netting a record intake of 152,000 customers in the final quarter of FY2019. Related profitability in this corner of the business should benefit from a reduction in wholesale prices, while re-contracting rates performed ahead of target, reducing customer ‘churn’ in the process.
The group scrapped its plan to hive-off its direct B2B unit to Daisy Group midway through last year; a move that was part of the general rationalisation as the business, involving a reduction in ancillary costs such as billing and customer service, which are absorbed by a network of partners and resellers.
The benefits of the move to lower customer acquisition and marketing costs were more than offset by a higher base of customers connected through a previous distribution agreement. Management anticipates to generate further significant cost savings from moving the group's headquarters to Salford, estimated at £16m-£20m in the current financial year.
Bloomberg consensus gives adjusted pre-tax profit of £81.5m for the March 2020 year-end, leading to EPS of 6p, rising to £96.5m and 6.9p in FY2021.
| TALKTALK TELECOM (TALK) | ||||
| ORD PRICE: | 116.4p | MARKET VALUE: | £1.33bn | |
| TOUCH: | 116.3-116.6p | 12-MONTH HIGH: | 140p | LOW: 92p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 42 | |
| NET ASSET VALUE: | 25p* | NET DEBT: | £781m | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 1.80 | 32.0 | 7.8 | 13.8 |
| 2016 | 1.84 | 14.0 | 0.2 | 15.9 |
| 2017 | 1.78 | 70.0 | 6.1 | 10.3 |
| 2018 (restated) | 1.65 | -100 | -10.3 | 4.0 |
| 2019 | 1.63 | -5.0 | 2.8 | 2.5 |
| % change | -1 | - | - | -38 |
| Ex-div: | 4 Jul | |||
| Payment: | 2 Aug | |||
| *Includes intangible assets of £730m, or 64p a share | ||||
