Shares in TalkTalk fall as it focuses on customer growth

The FTSE 250 firm was down more than 10 per cent in early morning 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 over the same period last year.

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

It also flagged that 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. The group cut its dividend to 2.5p for the first half of the year, down from 5.29p in 2016.

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 per cent for the half-year, down from 1.4 per cent.

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. 46,000 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.

“However, there is no getting away from the fact that, longer-term, profits will need to rise up the priority list.”

Earlier this month, Ms Harrison said that many British businesses were suffering from woefully poor fibre optic broadband penetration. She made the comments as she visited Yorkshire to see work start on the second phase of TalkTalk’s ultra fibre optic broadband network, which will become available to nearly 55,000 homes and business across York over the next two years.

Ms Harrison added: “Broadband needs to be treated as a ‘fourth utility’ with sufficient capacity to allow data to flow at the volume, speed and reliability required to meet the demands of modern life. This is the approach we are taking in York. The UK is woefully penetrated in terms of fibre to the premise take-up.”