TalkTalk Telecom has slipped back after warning on full year profits.
The company has reported a 4.2% rise in revenues in the third quarter as it recorded its fastest combined take-up of mobile, TV and broadband services. But with costs falling more slowly than expected - net savings from improving efficiency would be £10m to £15m lower that planned - it said full year earnings would be at the lower end of market expectations. Losses from the acquistion of Tesco’s blinkbox were another factor hitting profits.
The company’s shares have dropped 5.9p to 312.4p, and Oriel analyst John Karidis issued a sell note with a 170p price target:
TalkTalk’s dividend and expensive valuation depend on its strategy working. We think the profit warning in November 2014 and management’s explanations for it show that it is not: TalkTalk seems to have to keep spending extra just to defend what it has already.
In part because of this, we also think TalkTalk will not be bid for soon. It has to follow what BT/Sky/Virgin Medai do because it still has around 18% of the broadband market to protect. This is why it continues to gift very many TV boxes and why it is spending more on mobile and fibre.
]o, to be clear, this is about more retention than acquisition cost. In our view the problems are (i) TalkTalk at present lacks the telco assets, balance sheet, or a reasonably stable customer base to compete; (ii) Vodafone will soon also start to compete on price for fixed line customers.
