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UK broadband provider TalkTalk dropped to the bottom of the FTSE 250 on Wednesday morning, after it cut its full-year dividend and predicted profits will drop in the next financial year.
The company returned to growth in the 12 months to March after its profits halved in the wake of a cyber attack in 2015.
However, it warned today that it expects earnings to slip again in the coming year as it spends money trying to attract new customers.
Shares in the group dropped as much as 17 per cent at the open, and at publication time were down 12 per cent to 161p.
Barclays said the full-year results showed a return to growth of TalkTalk’s customer base and a “clear ambition” to continue this growth in coming years. Barclays added:
Our EBITDA forecast of £286m (full-year 2018) lies in the middle of the new guidance range of £270-300m, and we assume modest growth thereafter due to operating leverage. Note TalkTalk should benefit from lower unit wholesale fees to BT, but this will be offset, in our view, by greater Fibre volumes.
Macquarie Capital analyst Guy Peddy said:
With BT warning in January, Liberty Global lowering UK growth targets on 8 May, and now TalkTalk resetting its business model, the cracks in the UK telecoms market are starting to look like chasms.
TalkTalk has cleared the deck and dramatically rebased expectations. Unhelpful in the short term but likely to be more deliverable and constructive in the midterm. The recent management changes allow for a new direction and different level of expectation. Looking through the Rocky and Horror elements from today, the show going forward should be more sensitive and rewarding.