Talktalk Telecom Group PLC (LON:TALK) finally got something to cheer about on Tuesday, with its shares up over 10% after a reassuring trading update.
However, the brighter picture could be short-lived for the FTSE 250-listed broadband and telecoms provider as its shareholders will gather on Wednesday for what could be a stormy annual general meeting.
READ: TalkTalk surges after announcing net 80,000 new broadband customers
Russ Mould, investment director at AJ Bell said the "AGM could be a test for management as they look to defend a £200mln rights issue earlier this year”.
TalkTalk’s founder and executive chairman Charles Dunstone is facing an investor revolt after an influential advisor services firm criticised the group’s move in February to place shares representing 19.99% of its existing share capital earlier this year – just below the threshold that would have required investor approval.
The Daily Mail reported a few weeks ago that the Investors' Association signalled serious concern over the decision and Institutional Shareholder Services has urged investors to oppose Dunstone's re-election to the company's board at the AGM as a sign of disapproval of fundraising, which provided cash to shore up the firm’s balance sheet.
Low bar set for figures
Mould added: “Sometimes companies set themselves such a low bar that it is difficult not to clear it. Broadband provider TalkTalk is a case in point, with its share price rising sharply as it commits to full-year guidance in a first quarter trading update.
“This is underpinned by the addition of 80,000 new broadband users in the period. This customer acquisition has come at a cost, with lots of them on fixed low-cost plans. Notably, average revenue per user fell slightly year-on-year.
“There is also a slight uptick in the proportion of customers leaving TalkTalk, which suggests the positive sentiment created by today’s update might be short-lived.”
The telecoms firm said it now has 2.1mln customers on fixed low-price plans, up from 2.0mln at the end of March.
READ: Investors dial into TalkTalk on takeover rumours
TalkTalk said the increase was despite a large number of customers coming to the end of their contracts, which contributed to an increase in churn – the proportion of customers leaving the company – rising to 1.28%, compared to an average of 1.22% in the previous financial year.
Neil Wilson, senior markets commentator at Markets.com noted that TalkTalk is “on track to report 15% growth in headline earnings before nasties.”
He said all this is “broadly in line” but, like AJ Bell’s Mould, said the real focus is tomorrow’s AGM and what investors will say about the £200m rights issue earlier this year.”
Potential sale also eyed
Wilson added: “We’re also eyeing the potential sale of the business and with shares still at multi-year lows the appeal of a growing subscriber base is important, albeit at the expense of margins.”
Fuelling some vague takeover chatter, at the start of this month, Toscafund Asset Management, TalkTalk’s second largest investor, raised its stake in the firm to 16.2% from 15.1%.
That move came just days after Dunstone – who returned to an executive role in May 2017 after long-time TalkTalk CEO Dido Harding stepped down - himself snapped up another £600,000 worth of shares to take his holding to 28.5%.