$TALK.L – TalkTalk interims

Fixed line telecommunications company TALK (TalkTalk) released its interims today (http://is.gd/ifle2Z), sending its shares up 12% to 243.9p in early trading.

Revenues were up 12.2% year-on-year, and the interim dividend was raised 15%. The final dividend expected to be raised by the same amount.

Their summary narrative states that they have lower net debt. However, their figures show net debt of £631m at 30.9.2015, compared to £555m at 30.9.2014, and £589m at 31.3.2015 (http://is.gd/5hEQK5). So their narrative seems to contradict the actual figures. Presumably I am misunderstanding something.

Their net debt/EBITDA is 2.80x. It is a figure that keeps on rising, which is a dissapointing sign. Their headline free cash flow is £27m for 6 m/e 30.9.2015, slightly down from the comparable of £331m. However, there are exceptional items of £33m, so they actually had negative free cash flow.

It seems that the quality of their earnings is low. Over the last six years, the sum of their basic EPS is 41.4p, whilst the sum of the adjusted EPS is 75.3p.

TALK has been discussed on Stockopedia by Roland Head (http://is.gd/X39sm0), and at the CIB (Compound Income blog) (http://is.gd/CcwOqw). Roland said that the “firm now has the classic profile of a falling star. History suggests that such stocks should be sold promptly, as their declines are often long and painful”. The CIB said on 9.11.2015 that the “dividend will now have to be cut given the debt and the limited cover”.

As I noted in a comment on Roland’s article, the company increases debt in order to finance the dividend. This cannot be sustained indefinitely.

TALK’s RS6m had been -34% as of yesterday. This puts it in the bottom decile, and is a bearish indicator. I expected the shares to open flat, or down, today. In the event, TALK has reacted positively to the interims.




About mcturra2000

Computer programmer living in Scotland.
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