Stock of the day 06/11/2015 – TalkTalk Telecom Group PLC

TalkTalk has been under attack-attack for the past few months, with the cyber-crime committed against it a fortnight ago just the tip of the iceberg.

Can the company prevent investors from hanging up the phone with its half year earnings on Wednesday?

For the majority of the first half of the year things were looking so good for TalkTalk; the company’s full year results in mid-May saw a 15% increase in earnings to £245 million led by a 4.2% rise in revenue to £1.8 billion. This caused TalkTalk to raise its forward guidance, now aiming for 5%, not the previously stated 4%, revenue growth for the next 2 years. It also saw the stock reach an all-time high by the start of June, crossing the £4 mark for the first time to hit £4.16.


(Source: IT-Finance.com 06/11/2015)

However it was just after this peak that TalkTalk’s troubles began. A tumble after hitting its highs pushed it back below the £4 mark for most of June and July; a warning on the 22nd of the latter month then really compounded matters. In its July statement TalkTalk claimed that demand for its broadband services was ‘softer’ than in recent quarters despite ‘higher promotional activity’; on top of this it revealed below expected revenue growth of 3.5%, falling short of the 6.5% estimates analysts have given for the company’s fiscal first quarter performance. To say this spooked investors is an understatement, and despite the company claiming it remains on track for its full year targets the stock plunging 23% in the following week.

After falling to a then-2015, and 11 month, low of £2.69 at the start of September things began to look up for TalkTalk, creeping above the £3 mark at one point hit £3.34. However across the start of October the stock dipped below £3 once again – and then the cyber-attack happened.

TalkTalk’s website went down on the 21st October, itself sparking a near 9.5% drop in its stock price to £2.62; as the company announced the issue was a cyber-attack (complete with ransom demand) and that customers’ data had been breached the stock fell further, eventually hitting a fresh 2015, and 27 month, low of £2.20. News on Friday, however, that only 4% (roughly 157,000) of the company’s 4 million customers were affected has helped lift TalkTalk away from those lows, leaving it at a current trading price of £2.29 (IT-Finance.com, 06/11/2015).

All things considered TalkTalk faces an uphill battle when it releases its half year report next week; another unexpected miss in revenue will only increase the company’s headache. More damaging still will be the likely costly impact of the cyber-attack issue, with TalkTalk’s profit forecasts set to suffer next Wednesday.

TalkTalk Telecom Group has a consensus rating of ‘Hold’ alongside an average target price of £3.38.