Talking up revenues and prices.

We have had results from TalkTalk (TALK) one of the UK's larger telecoms players who have been investing and expanding into becoming a quad-play operator (phone, broadband, TV and mobile) to take on some of the bigger players like BT and Sky with a value based proposition.

I don't have time to go into all the detail today but they did upgrade their revenue growth forecasts to 5% from 4% for the next couple of years. They also still expect to achieve a 25% EBITDA margin by 2017, although I note that in the past they have pushed this back when investing for growth. So I guess you couldn't rule that out again as they seem to be talking about potentially rolling out their own fibre network

Aside from that they increased their dividend by their previously promised 15% to 13.8p which strangely was ahead of consensus forecast of 13.5p despite their stated intention to raise the dividend at this rate. They have promised to raise it by a further 15% again this year which will make 15.9p, in line with the consensus for next year and will leave them on a yield of around 4.4%.

Summary & Conclusion
The yield and and the promised growth remain the main attraction with this one, although you have to wonder how long they can keep raising it if the profits don't come through soon. This is especially so as the balance sheet is quite geared with debt equivalent to 2.4x EBITDA which is quite high but they do claim it will come down to less than 2x. This level of debt is probably more acceptable for a utility type business such as this. In addition as a customer of theirs I note that they are able to raise their prices quite readily without much hindrance from the regulator.

For example I just renewed my annual line rental with them for what they highlighted was a £20 saving. However last year I paid £141 as a result, whereas this year it came to £180.36 for a whopping 27.9% increase, although they are not alone in this, so much for competition and regulation! In addition my package price is due to go up by around 8% shortly and I'm sure call prices have been increasing too so they certainly seem to have pricing power.

On that basis I'm happy to run with it for the yield and dividend growth despite the apparently high rating and stretched balance sheet given the oligopolistic type features. In addition, If they do achieve their 25% EBITDA margin target in 2017 I think it could rise to around 450p by then and be on a fairer looking 14x or so which should give a fairly decent total return. However, time will tell if they actually deliver on their margin promise by then or if they find more things to spend their cash on (like Blinkbox recently). in the meantime if you don't like the shares then enjoy some music from TalkTalk the band above.