Since the owners of Virgin Media and O2 launched their £31 billion merger last month there have been more question marks about the ability of Talktalk to compete (Alex Ralph writes).
Yesterday its full-year results showed a resilient performance, but a company still facing uncertainty over its longer-term position in a consolidating market and in an industry shifting towards “converged” services of broadband, mobile and fixed-line telephone.
Talktalk, led by Tristia Harrison, is now three years into a strategy focusing mainly on providing broadband services, in a return to its roots. It is seeking to capitalise on more demand for data consumption, up 40 per cent year on year, driven by video streaming, online gaming and cloud storage services.
Demand has been accelerated by the pandemic and Talktalk hopes that hard-up consumers will increasingly switch to its “value” contract.
The company was founded by Charles Dunstone in 2003 as part of his Carphone Warehouse business and was spun off in 2010. Sir Charles, 55, is the biggest shareholder, with a 29.8 per cent stake, and retook control in 2018 as executive chairman in an attempt to revive the company, which had lost its way and struggled with competition.
Talktalk had embarked on a project to build full-fibre networks in Yorkshire but in January agreed to sell the venture, called Fibrenation, to Cityfibre, a so-called alt-net provider, for £206 million.
The deal, which completed in March, includes a long-term wholesale agreement giving Talktalk access to Cityfibre’s full-fibre network in parts of the country where it is building. Talktalk is also in talks with Openreach, BT’s broadband infrastructure division, to access its full-fibre network, while seeking to enter into wholesale agreements with other alt-nets.
The Fibrenation sale helped return Talktalk to a pre-tax profit of £146 million in the year to the end of March, compared with a loss of £5 million a year earlier.
On an underlying basis, earnings before interest, tax, depreciation and amortisation rose by 9.7 per cent to £260 million, including a £3 million provision for bad debt linked to the pandemic. It was boosted by lower costs, due to a reduction in faults because of more reliable fibre connections; and savings, principally from the company’s move to Salford. The relocation from London is expected to deliver £25 million to £30 million in annualised savings.
The restructuring left net debt broadly flat year-on-year, down to £775 million from £781 million, with the fibre assets sale offset by “significant” working capital outflows from settling a key supplier monthly invoice earlier than forecast and the cash cost of its HQ move.
Customer churn was flat at 1.2 per cent year-on-year, with a better second half as consumers were reluctant to switch for fear of losing connectivity during the pandemic.
Headline revenue fell by 1.7 per cent to £1.5 billion because of continued industry-wide declines in call usage; a “modest” decrease in its overall customer base; and average revenue per user, a key industry metric, falling 2.5 per cent as Talktalk encouraged some of its higher-revenue legacy customers on its copper-wire products to sign up to a fixed-price fibre plan. It added 605,000 additional net fibre customers, meaning almost 2.4 million, or 60 per cent, of its total customer base now take a fibre product.
Talktalk held its total dividend at 2.5p per share and has not provided formal guidance, beyond expecting stable ebitda this year, after assuming a £15 million impact from Covid-19.
ADVICE Hold
WHY May benefit from its value proposition in economic downturn and potential industry consolidation
MONEYSUPERMARKET
Revenue, 2019 £388 million Profit, 2019 £95 million
There have been many corporate victims of the pandemic, with price comparison websites among the less obvious. But the truth is, while more people have been sitting at home using their computers, they have felt less impetus to search for new car and home insurance, or new loans or savings deals (Katherine Griffiths writes).
That is bad news for Moneysupermarket and its ilk. The usually ebullient company warned yesterday that times have been tough in insurance and bleak in its money division. There was better news in its energy and utility switching arm as people working from home have been spurred into looking for better deals on services normally provided by their companies.
The statement was sobering for investors in Moneysupermarket, who appeared to have assumed that after an initial hit from the virus as the economy froze, the situation would get back to normal quite quickly.
The shares fell 6.2 per cent to 324½p yesterday. In car cover, its biggest division, insurers are not driving up prices. That is because their costs are set to plummet as fewer people are on the roads, leading to a drop in accidents and so a big rise in their returns. As proposed premium increases normally send people to comparison websites, that means less business for Moneysupermarket in recent weeks and probably into the future.
A freezing of the housing market has also meant less property and life insurance, although that should come back with sales resuming.
The news is bad on the money front. Moneysupermarket offers loans, credit card and savings comparisons, but banks are not undercutting each other at the moment. They are awash with deposits from those lucky enough to be saving hard during the lockdown, while they are not keen to aggressively market unsecured debt, given that there are many in distressed circumstances.
Importantly for a business like Moneysupermarket where marketing is a key investment, it is sticking to its spending. That should be key to growth as things improve, albeit probably over the long term.
ADVICE Avoid
WHY It is one of the best in its sector, but business will not bounce back for a while
