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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  BT Group    BT.A   GB0030913577

BT GROUP (BT.A)
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Britain's TalkTalk raises cash, cuts dividend to join the fibre race

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02/08/2018 | 04:44pm CEST
A woman views her phone as she passes a branded logo outside the Talktalk headquarters in London

LONDON (Reuters) - TalkTalk (>> TalkTalk Telecom Group) raised 200 million pounds from investors on Thursday to help fund a plan to connect three million British homes and businesses with ultrafast broadband and keep it competitive with bigger rivals.

LONDON (Reuters) - TalkTalk (>> TalkTalk Telecom Group) raised 200 million pounds from investors on Thursday to help fund a plan to connect three million British homes and businesses with ultrafast broadband and keep it competitive with bigger rivals.

The British firm said it had provisionally agreed to set up an independent company with M&G Prudential to build the network, with a combined potential equity investment of up to 500 million pounds and borrowing of around 1 billion pounds.

But TalkTalk also cut its full-year earnings forecast and said it would slash its dividend to help fund the new network and rebuild its customer base, sending its shares down more than 10 percent.

"TalkTalk's announcement is a major rolling of the dice to turn around the fortunes of a company dogged by profits warnings and underperformance versus larger peers," said Henry Croft, research analyst at Accendo Markets.

M&G's infrastructure equity investment arm Infracapital will contribute 80 percent of the funding and TalkTalk 20 percent. TalkTalk will initially invest 100 million pounds into the project over five years.

Charles Dunstone, the founder of the smaller rival to BT (>> BT Group), Sky (>> Sky) and Virgin Media (>> Liberty Global PLC), said the plan would put TalkTalk "at the heart of Britain's fibre future".

Britain's broadband providers had been slow to commit to the "gold standard" of full fibre to the premises (FTTP). But the government and the regulator has adopted a "fibre first" strategy in the last year or so, which is starting to deliver.

BT, the owner of the biggest network, said last week it would connect three million homes and business with FTTP by the end of 2020, while Vodafone (>> Vodafone Group) is partnering with CityFibre (>> CityFibre Infrastructure Holdings PLC) to connect another five million by 2025.

TalkTalk said its five-year project would target mid-sized cities and towns, such as York, the northern English city where it has built its first network.

Dunstone said its plan would complement BT's focus on large cities. "The telecoms industry collectively has a very big job to do in upgrading broadband to provide the service people need in a modern economy," he said.

TalkTalk will be able to sell access to its new fibre network to rivals, a reversal of roles from the way it operates in most other parts of the country.

Britain's Digital Minister Matt Hancock welcomed the move, saying: "It's fantastic to see TalkTalk stepping up to the plate."

BROADBAND RESET

Dunstone, along with CEO Tristia Harrison, has been "resetting" TalkTalk since he returned to a hands-on role nine months ago. He is positioning it firmly in the value end of the market with long-term fixed-price plans and has stepped back from services like mobile.

The strategy is attracting new customers - Dunstone's priority - but coming at a cost to earnings.

The company added 37,000 customers in its third quarter, and forecast additions of 150,000 to 160,000 in the full year.

"We have really got the growth going, the growth has accelerated again this quarter and we think this quarter (Q4) is significantly bigger," Dunstone said

He said the fundraising and dividend cut would answer long-running questions about the company's balance sheet.

"When we get to two times EBITDA (earnings before interest, tax, depreciation and amortization) cover to debt we'd look to normalise the dividend again, an estimate would be perhaps two to three years time," he said.

TalkTalk shares, which have fallen 29 percent in the last 12 months, were down 8.6 percent at 109 pence in afternoon trade. It placed shares at a price of 107 pence, with the amount representing around 20 percent of its existing share capital.

The company said it now expected full-year core earnings to come in between 230 million and 245 million pounds, down from its previous forecast of 270-300 million.

It said it would temporarily reduce its full-year dividend to 2.5 pence. It paid 10.29 pence for its last financial year.

Barclays and Deutsche Bank are acting as joint global co-ordinators and joint bookrunners for the placing of new shares.

(Editing by Guy Faulconbridge and Mark Potter)

By Paul Sandle

Stocks mentioned in the article
ChangeLast1st jan.
BT GROUP 0.21% 226.1 Delayed Quote.-16.91%
CITYFIBRE INFRASTRUCTURE HOLDINGS PLC 0.00%-End-of-day quote.37.12%
LIBERTY GLOBAL PLC -0.52% 26.66 Delayed Quote.-25.61%
SKY -0.09% 1528.6212 Delayed Quote.51.19%
TALKTALK TELECOM GROUP -1.69% 115.8 Delayed Quote.-22.19%
VISA 0.52% 140.65 Delayed Quote.23.36%
VODAFONE GROUP -0.60% 175.906 Delayed Quote.-24.68%
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Financials (GBP)
Sales 2019 23 331 M
EBIT 2019 3 776 M
Net income 2019 2 132 M
Debt 2019 12 625 M
Yield 2019 6,74%
P/E ratio 2019 10,13
P/E ratio 2020 9,69
EV / Sales 2019 1,48x
EV / Sales 2020 1,52x
Capitalization 21 987 M
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Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 2,70  GBP
Spread / Average Target 20%
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Managers
NameTitle
Gavin E. Patterson Chief Executive Officer & Executive Director
Jan Petrus du Plessis Chairman
Simon Jonathan Lowth Group Chief Financial Officer & Executive Officer
Howard Watson Chief Technology & Information Officer
Nicholas Charles Rose Senior Independent Non-Executive Director
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