TalkTalk Group PLC (LON:TALK) unveiled a £200mln share placing, cut its full year earnings guidance and reduced its dividend as it plans to invest in rolling out fibre broadband to UK homes.
Shares plunged 12.2% to 105p in morning trading.
The company is in talks with Infracapital, the infrastructure equity investment arm of M&G Prudential, over a £1.5bn investment to bring fibre-to-the-premises (FTTP) to over three million households.
TalkTalk has signed a heads of terms agreement with Infracapital to create a joint venture to replace ageing copper telephone lines with fibre optics to improve internet speeds.
The joint venture will be 80% owned by Infracapital and 20% by TalkTalk.
The roll-out of FTTP was initially trialled in York and TalkTalk said it is" delighted with the progress made so far".
BT and Vodafone also building FTTP network
It marks the latest in a series of collaborations in the UK telecoms sector to upgrade the country's broadband infrastructure.
"Hot on the heels of Vodafone’s tie-up with CityFibre and BT’s £3bn pledge to improve its ‘fibre to the premises’ programme, 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, receiving kudos from the government’s Culture minister in doing so," said Henry Croft, research analyst at Accendo Markets.
"A decisive turn to fibre shows TalkTalk is willing to test new waters to reinvigorate its business, venturing deep into the brave new world to offset weakness from traditional divisions.
"However much depends on the success of this venture, as a failure to properly capitalise on demand for faster internet speeds in the smart appliance age could spell the beginning of the end for a company once seen at the forefront of UK digital innovation."
TalkTalk announces share placing
The company will kick off a share placing on Thursday through an accelerated bookbuilding process with the proceeds to be used to support its plans for FTTP, to invest in customer growth and to strengthen its balance sheet.
Executive chairman Charles Dunstone, and other directors will take part in the fundraising up to an aggregate amount of £40mln.
“By signing heads of terms with Infracapital we are making good progress towards putting TalkTalk at the heart of Britain's fibre future by building a full fibre network, bringing faster, more reliable internet to millions of homes and businesses,” Dunstone said.
TalkTalk trims earnings forecast, cuts dividend
On the back of its investment plans, TalkTalk now expects underlying earnings of £230mln to £245mln, down from its previous guidance range of £270mln to £300mln, for the 2018 fiscal year.
TalkTalk also reduced its dividend for the second time in a year to fund its share of the investment in FTTP.
It will cut the dividend from 7.5p a year to 2.5p to invest in growth and fibre with the final payout reduced to 1.5p.
The group, however, raised its forecast for the number of net customer additions in 2018 to 150,000-160,000 after adding 37,000 users in the third quarter.
Third quarter revenue growth
Revenue in the third quarter rose 1.0% to £388mln, accelerating from the 0.8% growth reported in the second quarter, boosted by strong demand for fixed low-price plans and fibre.
TalkTalk also reduced its churn rate to 1.3% from 1.4% in the second quarter and 1.6% a year ago.
"It's 12 months since I announced my intention to take a more active role in the management of TalkTalk,” said Dunstone.
“Since then, we have reset the business and returned it to quarter-on-quarter customer growth.”
For the full year 2019, the group expects headline revenue growth, a 15% increase in EBTIDA, net adds in line with 2018, average revenue per user stabilising and a “significant” cost reduction as part of its restructuring.
The company plans to pay an interim dividend of 1.0p and a final dividend of 1.5p in 2019.