TalkTalk shares dive as firm swings to half-year loss

Shares in TalkTalk have slumped after the telecoms group dived to a half-year loss and warned over profits as it took a hit from efforts to secure more customers.

The FTSE 250 firm was down more than 8% in afternoon trading on the London Stock Exchange, as it booked a loss of £75 million for the six months to the end of September, down from a £30 million profit for the period last year.

It was also hit by a £59 million charge, which included £20 million of costs linked to setting up offices in Salford and changing its organisational structure.

Revenues dipped 5% to £828 million for the half-year, with headline earnings dropping 34% to £95 million in response to the firm’s investment drive.

It said annual earnings would come in at the lower end of its target of £270 million to £300 million, as it pushes through further investment to capture a greater share of the market in the second half of the year.

TalkTalk chief executive Tristia Harrison said: “When we simplified and reset the business in May, we said our priorities were growth, cash and EBITDA (earnings before interest, taxes, depreciation, and amortisation), in that order.

“We have now delivered a third consecutive quarter of growth in our broadband base, with both retail and wholesale bases growing; returned to on-net revenue growth; and delivered lower churn than a year ago.

“We expect to step up our planned investment in growth in the second half, as we take advantage of the strong demand we are seeing for our fixed low-price plans; fibre take-up and affordable propositions in both our residential and B2B markets.”

TalkTalk pulled in 46,000 more customers during the half-year after seeing a 29,000 drop over the period in 2016.

The group secured double-digit customer growth across its retail and wholesale businesses, with customer demand for its fixed low-price plans (FLPP) driving the strongest share of the switching market in three years.

Stronger demand for FLPP’s also curbed the percentage rate of customers leaving the firm – or churn – to 1.3% for the half-year, down from 1.4%.

TalkTalk, which has around four million customers, cut its interim dividend to 2.5p, down from 5.29p in 2016.

George Salmon, equity analyst at Hargreaves Lansdown, said: “The big share price drop is largely a function of the group saying profits are going to be at the bottom end of previous guidance, but, odd as it sounds, this year’s profit was never a top priority for the new management team.

“Instead, the focus has been on restoring customer growth, and progress here has been good. Forty-six thousand on-net broadband customers were added in the half, and the TV customer base is now growing again after the turbulence of 2015’s data hack.

“The opportunity to boost margins and profitability should arise once TalkTalk’s investments in getting its house in order are complete, so we’re willing to give the group the benefit of the doubt for now.”