TalkTalk Telecom
Trading impact of cyber attack £15m
Life is not yet entirely back to normal at TalkTalk Telecom after its cyberattack in the autumn, but the company is encouraged enough to put out some profit and dividend forecasts for the current financial year to the end of March and the next one.
These are not normally released at the third-quarter stage, but the numbers indicate that if you strip out all the one-off costs, profits are moving forward strongly as the company adds to its average revenues per customer by selling more services.
The drop in customers because of the attack, a net loss of 101,000, was probably not as bad as some had expected, helped by the decision to offer a free upgrade. TalkTalk’s response to the crisis possibly was better than others in the same situation.
Revenue growth in the third quarter was 1.8 per cent amid all the disruption, way behind the 4 per cent and 6 per cent in quarters one and two, respectively. The churn rate, the proportion of customers switching service, was probably about the same, if this time you take out the effects of the attack, and the number of customers stabilised into January.
The information commissioner is looking into the affair, but this is an automatic inquiry and is not likely to lead to any further action in terms of fines. Investors probably can draw a line under it, then. What happens thereafter, though, is rather less clear.
Two negatives are the BT purchase of EE and Sky’s intention to move into the mobile phone market, both hard to quantify. The merger between O2 and Three is not being viewed well by regulators. If the deal goes ahead, there surely will have to be sales of parts of the spectrum to allow someone else to step in and provide competition.
TalkTalk could. Iliad, the French telecoms group, has been mentioned in this context, too, as has a link with or straight takeover by it of TalkTalk, a story that has sent the price higher in the past week or so. This, again, is an imponderable.
The fall in the TalkTalk share price since the autumn looks excessive, although they rose 4p to 222p yesterday. The shares sell on about 14 times’ next financial year’s earnings and yield more than 7 per cent. Investors, therefore, are being well paid to await developments.
My advice Buy long term
Why Dividend yield is so high that customers might as well take the income while they await further changes in the sector driven by regulation
BP
Dividends in 2015 40 cents
Time was, any share offering a yield of much more than 6 per cent was signalling a dividend cut. The yield on BP shares, as it maintains payments for 2015 without the profits to support them, is 8.4 per cent, on a price off 31¾p at 335p. This is about the best income on the market, disregarding Royal Dutch Shell, which is a different case because of the need to get the BG Group takeover through.
With oil again below $35 a barrel, is that BP dividend sustainable through 2016 and beyond? No. And yes. No, because BP’s price for oil at which it breaks even is $60 a barrel, and we are a long way off seeing that again. The global miners accept that low commodity prices have required them to rebase their dividends.
Yes, because BP seems persuaded that it can push stubbornly through, paying the $6.6 billion total out of cashflow last year that was above $20 billion; that gearing of little more than 20 per cent is low historically; and that it can continue to cut costs and capital spending.
If you take a view that the oil price is staying at its present level or a bit more as the new normal, then one day that dividend will have to be cut. Enjoy it while you can.
My advice Buy for income
Why Dividend looks sustainable for now
St Modwen Properties
413.5p latest net asset value
At some stage in the next few months, the first site on the huge New Covent Garden Market site in south London will come on the market for potential investors. This is a ten-acre plot with a value put on it of more than £600 million and St Modwen owns half of it, along with Vinci, the French construction group.
New Covent Garden as a whole represents about 13 per cent of St Modwen’s total portfolio, easily the biggest asset, and when it was taken on to the books in the financial year to the end of November added £127 million to the total valuation of that portfolio. It makes perfect sense for both owners to invite offers for what is one of the most significant undeveloped projects in the capital and to take a view on whether to exit entirely or remain in for some of the development gains.
The company is happy that there are plenty of other places to recycle any surplus cash. It has a pipeline of 1.6 million sq ft of commercial property and two other big schemes, at the old Longbridge plant in Birmingham and at Swansea Bay.
The property sector has been out of favour of late, while concerns have been raised over the top end of the London residential market. From the company’s perspective, such concerns look excessive.
St Modwen shares, approaching 500p in the summer, fell 7¼p to 386¾p. This is a significant discount to the latest net asset figure of 413½p, boosted by that New Covent Garden uplift. That discount feels overdone, given the company’s record, and the price could start to move again on positive news of disposals.
My advice Buy long term
Why New Covent Garden provides good opportunities
And finally . . .
Mattioli Woods is a specialist wealth manager and provider of employee benefits that has been growing quietly by adding bolt-on acquisitions of regional companies, a good way to extend your client lists. There was another bought last month in Aberdeen. Mattioli Woods plainly is doing well out of all the changes taking place in pensions and has the benefit of £18.6 million of fresh funds raised in June to be spent on such purchases. The shares have been strong, up by a fifth since the summer.
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