A near 50% reduction in the 2015 financial year dividend forecast highlighted the challenges TeamTalk faced, Forsyth Barr broker Peter Young said yesterday.
TeamTalk was forecasting a 2015 dividend of 8c per share compared with 17.5cps in 2014 and 20cps in 2013.
It also indicated it expected a first-half operating profit of $6 million compared with $7.7 million for the first half of last year, including one-off impacts.
''Our concern primarily relates to the reducing dividend as we believe this indicates a view by the company the transition to providing ultrafast broadband and Rural Broadband Initiative-based services to new customers will take longer than initially expected.''
That would, in turn, reduce the total number of customers TeamTalk would acquire as end users obtained services elsewhere, he said.
TeamTalk had struggled to make the transition it required to respond to the RBI and UFB threats, leading to lower than expected revenue, Mr Young said.
The reduction in dividend guidance suggested the transition would take longer than expected.
TeamTalk had historically prided itself on a consistent dividend. In 2014, it reduced its dividend from 20cps to a forecast of 15cps.
The move in guidance from 15cps in 2015 to 8cps highlighted three key points.
• The transition of TeamTalk operations to new business models will require more than a year.
• The company wants to get its balance sheet under control.
• Reducing debt and delivering a consistent yield is a reduced priority.
The difficulty TeamTalk had in responding to RBI and UFB, as well as plans to reduce operating expenditure and capital expenditure, caused Forsyth Barr to reduce its forecasts for several years, he said.
The company had noted it would review its capital programme.
When that was linked with the potential of a slower transition of services, it suggested weaker operating profit in the longer-term than earlier expected.
''There is an opportunity in the rural space for a dedicated rural service provider [Farmside], as well as alternative providers of data services in urban areas.
"TeamTalk must prove it can deliver in both of these markets, as they are both subject to significant change. Management must prove it has learned from its mistakes and can deliver on the long-term opportunities,'' Mr Young said.
What has changed
Earnings: 2015 financial operating earnings down 5% to $14.3 million, 2015 earnings down 8% to $14.6 million and 2016 earnings down 9% to $14.9 million.
Target price: Share price down 55c to $1.20.
Rating: Downgrade to neutral
