A potential profit warning could be on the cards for calls and broadband supplier TalkTalk (TALK) according to a bleak assessment by analysts at broker Numis Securities on Wednesday.
Numis analysts admit that they are becoming increasingly worried about TalkTalk’s ability to hit forecasts. They are not alone. Of the 17 analysts that follow the company seven are outright sellers of the stock, another seven fence-sitting holders.
Only three reckon the shares are worth buying.
DOUBTS OVER FORECASTS
The year to 31 March 2018 will likely be published sometime in May and these might be alright, thinks Numis.
‘Our estimates are in line with guidance for full year 2018 and 2019 but we see risk that TalkTalk will miss its 2019 targets,’ they conclude.
This is partly due to self-inflicted wounds - multiple profit warnings, slashed dividends and weak cash flows, for example. Yet even if the company ‘stops stumbling’ savage competition from bigger and better-armed rivals looks likely to get stiffer.
‘We believe BT (BT.A), Sky (SKY) and Virgin Media have not finished making its life ever more difficult,’ says Numis.
INVESTOR TRUST HAS BEEN LOST
Numis has an 85p share price target on the stock as it stands, based on its discounted cash flow calculations. That would mean facing further falls of 25% even after today’s 3% stock decline to 112.8p. Investors are clearly spooked.
And well they might be, TalkTalk has a patchy operating track record to say the least. Last year’s statutory pre-tax profit of £70m was up on the £58m in the previous 12 months yet that remains well off the pace of past years - it reported a £122m equivalent figure back in 2013.
‘The company promises a return to EBITDA growth next year, but we wouldn’t bet the house on it,’ said analysts at Megabuyte in February.
EBITDA is earnings before interest, tax, depreciation and amortisation.
Other operational prangs in the recent past (2015’s badly handled cyber attack for one) has savaged the shares and left investor returns in tatters. The stock has effectively halved in the past year and has collapsed from above 400p levels over the past three.
MARKET EXPECTS
Numis currently anticipates £143m EBITDA for the year to 31 March 2018 and free cash outflows totting up to £32.7m.
This year (31 March 2019) the broker has £240m and £76.7m of positive free cash flow. That’s already below consensus of £260m EBITDA and £110m free cash flow.
