Shares in broadband provider TalkTalk (TALK) have declined 9% to 101.6p on a profit warning as an accounting change and higher investment takes its toll.
Shares in TalkTalk have been in freefall over the last five years, losing nearly 75% of its value as they have plummeted from an all-time high of 403p in May 2015.
Underlying profit is expected to fall by up to £15m to a range of £245m to £250m in the year to 31 March 2019.
TalkTalk is blaming various reasons for its disappointing guidance, including a timing adjustment from accounting method IFRS 15 and more investment in fibre broadband services.
The company’s FibreNation fibre to the premises (FTTP) venture, which is expected to rollout faster broadband, is also expected to incur £5m to £10m in costs this year.
Looking ahead to 2020, earnings before interest, tax, depreciation and amortisation is expected to be in line with market expectations at £271m.
TalkTalk’s customer churn is currently low at 1.1% in the quarter to 31 December, slightly lower than 1.2% over the same period last year.
CHEAP DEALS MAY BACKFIRE
AJ Bell investment director Russ Mould argues TalkTalk’s reputation has been seriously diminished by a big cyber security attack in 2015 and suffered from complaints over customer service.
‘As today’s profit warning reveals the company is achieving customer growth, even beating expectations on this metric, but only by offering deals to entice people onto its network,’ comments Mould.
TalkTalk is on track to beat its 150,000 target for new customers, but investors should be cautious that offering cheap deals could hit its margins.
IT analysis consultancy Megabuyte questions the reasons for the earnings warning as the impact of accounting changes could have been forecast, while some FibreNation costs should have been in the budget.
‘Whilst TalkTalk is undoubtedly progressing in terms of subscriber trends and underlying profitability, one again gets the feeling that the company is still not full on top of the numbers,’ comments Megabuyte.
