Broadband and calls supplier TalkTalk (TALK) issued a relatively upbeat update on first quarter trading to 30 June that effectively keeps the business on track to meet full year expectations.
The figures show headline revenue up 1.3% at £387m and net new fibre broadband customer numbers up 118,000, with average revenue per user, or ARPU as it is known across the industry, 0.3% higher at £24.72.
The company also reiterated its expectations of ‘strong growth’ in EBITDA (earnings before interest, tax, depreciation and amortisation) this year to 31 March 2020, saying that ‘our ongoing simplification and cost reductions continue to drive improvement in profitability, and we remain on track to deliver EBITDA in line with expectations for the year.’
TalkTalk’s share price has rallied more than 4% in response to 110.2p.
POINT ONE: EXPECTATIONS
Market forecasts are currently pitched for EBITDA of £257m from £1.65bn of revenue, according to consensus estimates provided by Reuters. That implies a rough 8.5% increase in EBITDA versus last year on a more modest 2.5% rise in revenue.
This would imply pre-tax profit about £72.5m of pre-tax profit although that will depend on how heavily adjusted the figures are. Last year TalkTalk claimed £37m of pre-tax profit despite a headline reported figure of just £5m.
POINT TWO: ARPU
ARPU is a key measure of progress for telecoms operators, it gives a sense of how successfully a supplier is at providing and selling higher value services to customers, such as faster internet speeds, fatter data download limits and streamed over the top services, like Netflix or Amazon Prime say.
TalkTalk today champions its success at rolling more of its customers onto a superfast fibre network, adding a net 118,000 in the quarter. So why is ARPU almost flat at £24.72? You would think shifting a user from copper to fibre would imply an upsell, and increased ARPU.
That’s a puzzle we may get more on at half year results, due sometime in November.
POINT THREE: FIBRE NATION
One of TalkTalk’s big growth plans is to rollout its own nationwide fibre network rather than relying on BT’s Openreach backbone. It has launched its Fibre Nation to this end, yet this is an expensive and long-run programme and the company doesn’t want to fund it alone (it probably can’t afford to).
It so far has a modest Fibre Nation network running across Yorkshire but TalkTalk has been looking for funding partners to help pay for a faster, wider expansion. Yet there is precious little news today other than saying it has ‘strong momentum’ in Yorkshire.
There has been flood on money coming into the UK fibre network investment space over the past year or more, and it might be that TalkTalk is driving a particularly hard bargain in conversation with potential partners.
