UK budget telephone provider, Talk Talk, is one of the most actively traded FTSE 250 stocks today, rising 6.70% to 125.50 in a bounce that follows an almost month-long decline.

The latest downward patch happened ahead of and after the company’s earnings in May when it reported an annual loss of £73m. But a couple of bank ratings later the sentiment is turning.

Earlier this week Deutsche Bank raised its target price by 10p to 180, arguing that TalkTalk will likely see top line growth recovery after a tough first half of the year.

Since then traders have been focusing on the more positive aspects of the company’s report such as the fact that TalkTalk started selling some of its B2B operations. It has also managed to increase its customer base in a relatively dense market for mobile phone services, broadband and digital television.

The firm also signed a heads of terms on a £175 million deal with Lancashire-based Daisy Group which includes around 80,000 small, medium sized and large enterprise clients or about 20% of TalkTalk’s business to business income.

Reputation, reputation, reputation

The company, which was set up in 2003 by Carphone Warehouse but was demerged in 2010, never fully recovered from a fiasco in 2015 when a cyber-attack on its member database caused customers to leave in droves.

To this day it is still struggling to fully recover its reputation.

In a recent survey by consumer website ISPReview only a third of the firm’s customers said that they believe the company has a good reputation.

But TalkTalk is working hard to re-establish itself; it remains the largest wholesale provider for B2B broadband and has the fastest growing base of customers using Ethernet, which generates a higher margin and EBITDA than other services.

It managed to increase its customer base by 192,000 last year mainly by keeping prices unchanged and its customer churn has fallen to its lowest level ever of 1.22%.

Growth target of 15% for the year ahead

Heavy investment lost TalkTalk money last year and the company decided to focus on customer growth while at the same time radically simplifying its business.

This year its target is to generate a 15% growth in profit, most likely from cost cuts. Given that TalkTalk has been good in the past with setting targets it can reach, this one should be achievable.

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Commodities and Shares Editor
13th June 2018
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