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TalkTalk Slides After Dividend Cut, Weaker Earnings Outlook

TalkTalk Telecom Group Plc1 shares plunged after the U.K. broadband provider reduced its payout to shareholders and said it’s focusing on growth over generating cash and profit.

The fiscal full-year 2018 dividend will fall 53 percent to 7.5 pence a share from 15.87 pence in 2016, London-based TalkTalk said2 Wednesday as it reported weaker-than-expected financial results. The operator forecast a drop in 2018 earnings as it invests to grow. The stock fell as much as 17 percent, the most ever. The most important market news of the day.

Get our markets daily newsletter. The dividend cut comes on Dido Harding’s last day, following her replacement3 as chief executive officer with Tristia Harrison and the greater involvement of founder Charles Dunstone. Even as TalkTalk’s 12-month dividend yield of 8.7 percent as of Monday was about four times the average of the European telecommunications industry, the size of the reduction and the weaker earnings outlook took investors by surprise.

“When you looked at the yield we had, it was kind of insane,” Dunstone, who moved this month to executive chairman from chairman, said in a phone interview. “We wanted to invest in growth. I want to run the business with real financial discipline and reduce the leverage of the business.”

The shares4 were down 12 percent at 161.10 pence as of 9:13 a.m. in London.

TalkTalk Slides After Dividend Cut, Weaker Earnings Outlook

TalkTalk, which reported net debt at 2.57 times earnings before interest, taxes, depreciation and amortization in its fiscal 2017 full-year results Wednesday, is seeking to lower the multiple to around 2 times. The company has been trying to reverse years of declines in its share of U.K.’s retail broadband customers, including by marketing fixed-price plans since last October. While it lost about 49,000 net broadband, mobile and video customer accounts in the year, it turned the trend around in the fourth quarter, adding 22,000 net customer accounts.

“Looking forward, our absolute priority is growth in the base, quarter to quarter,” Harrison said in an interview. TalkTalk’s focus on growth will mean more price competition for rivals5, according to analysts at Goldman Sachs.

“Overall, we view this as negative for the U.K. fixed market (including BT), which has enjoyed price inflation in recent years,” the analysts said in a note.

Sales Wane

Revenue for the year ending March 31 fell to 1.78 billion pounds ($2.31 billion), missing the average analyst estimate of 1.8 billion pounds. Ebitda rose 17 percent to 304 million pounds, below the 309 million pounds average estimate. The rate at which customers left the company — known as churn — fell to 1.45 percent in the full year, from 1.6 percent.

TalkTalk positioned itself as a low-cost upstart underdog after being spun off by retailer Carphone Warehouse Plc in 2010.

It targeted former telecom monopoly Company Profile (www.bloomberg.com)

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