Insider: Big bets these two have bottomed out
2nd December 2016 13:04
by Lee Wild from interactive investor
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Can TalkTalk walk the walk?
Two weeks after half-year results mid-November, and with shares down 23% since, non-executive director Roger Taylor decided enough is enough.
TalkTalk's deputy chairman until 2012 and a 16-year veteran of Carphone Warehouse and , Taylor has just spent almost £3.2 million building his stake in the business.
Taylor picked up 1.16 million shares at 155.8p each and a day later added a further 840,631 at 162.3p.
Last time you could pick TalkTalk shares up this cheaply was in May 2012. But has Taylor got a bargain, or could he still get his fingers burned?
Well, cash profit (earnings before interest, tax, depreciation and amortisation - EBITDA) of £130 million in the six months ended 30 September was up 44% on the year before and better than expected. However, while it predicts further growth in the second half, full-year profit will be at the bottom of its £320-£360 million guidance.
It also warned it lost 29,000 broadband customers and 56,000 TV customers during the period. Analysts worry that TalkTalk has to price its packages cheaply to keep customers and acquire new ones. It's clearly not working.
And just this week analysts at JP Morgan warn that if things do not improve, TalkTalk could miss earnings forecasts. It also raised concerns about the generous dividend.
TalkTalk has also made the news for internet security breaches. This week, we hear that broadband subscribers were left without web access following a cyber attack that also hit thousands of Post Office customers.
The latest blow comes little more than a year after the company's computer systems were hacked. In the fallout, the firm was fined a record £400,000, lost over 100,000 customers and incurred costs of around £60 million.
The Gym Group
Budget gym chain floated on the main market 13 months ago at 195p. Its first six months as a listed company followed the script, peaking in April with a 43% gain, but it's been tougher since.
It's not been much to do with business. In August, the company said it was trading in line with expectations after reporting a 25% increase in first half revenue, driving adjusted cash profit up 35% to £3 million.
Six new gyms were opened during the six months, taking the total to 80, and membership grew by 19% to 424,000. It's on track to open 15 gyms this year which, although in line with the company's own 15-20 target, some in the City had pencilled in more.
There's also been an issue with valuation. Even at 165p, Gym Group shares trade on over 21 times the 7.7p earnings per share predicted by Numis Securities for 2017. Roll a year forward and the price/earnings (PE) ratio for 2018 is still around 17 times.
Numis analyst Wyn Ellis blames the rich valuation on "estate immaturity and conservative accounting policies".
"Slowing supply growth, a stabilisation in EBITDA per mature site and meeting rollout guidance more convincingly are areas in which we would like to see progress before taking a more positive view," adds broker Barclays.
Well, Gym Group management sees plenty to like already and is betting big on good news at the next trading update on 12 January.
Chairwoman Penny Hughes and chief executive John Treharne both bought in at around 162p, snapping up 12,500 and 20,000 shares respectively. Finance boss Richard Darwin spent over £21,000 on 12,500 shares at 168.8p
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.