Scrutineer: Why it's good to TalkTalk

Published on Friday 5 June 2009 20:47

CHARLES Dunstone's Carphone Warehouse looks to be on a roll. Last year the group put the fear of God into the European electronics industry when Dunstone sold its main mobile phone retail business into a joint venture with American consumer electronics leviathan Best Buy. A big transatlantic telecoms beast was therefore created.

Carphone

171.5p -1p

Bellway

644.5p -13.5p

Now Carphone has revealed it is making good headway with the demerger of its TalkTalk broadband business that it first flagged up last November.

Dunstone says the company is close to agreeing banking arrangements for the retail part of the business, and that the spin-off of TalkTalk should at the very latest be in July 2010.

The demerger is a good idea. As Dunstone says, there are no meaningful synergies between the two arms of the business now, and this will be even more the case as Best Buy Europe – in which Carphone has a 50 per cent stake – no doubt increasingly cuts a swathe through the Continent.

Best Buy Europe plans to roll out a new chain of electrical goods stores in Europe next year, starting in the UK, and it will not want the operational and management diversion of TalkTalk confusing the picture.

If all this was not positive enough, Carphone put out pretty resilient trading results yesterday.

And Best Buy Europe saw annual underlying earnings fall 13 per cent to 188 million, which is not a bad performance in the current tough climate for consumer electronics.

The joint venture will only really show its paces when the economy is recovered. But then it should be impressive.

Meanwhile, although there was a 2.7 per cent drop in revenues at TalkTalk in the year to end-March, the division's underlying earnings rose 56 per cent to 181m. The business notched up 93,000 new customers in the latest year to 2.8 million. A reasonable backdrop to the flagged spin-off, then.

The recently announced acquisition by Carphone of Italian broadband firm Tiscali will also help TalkTalk by allowing it to jump over Virgin Media to become the second biggest UK broadband operator behind BT, with 4.25 million subscribers.

Such a strong market position will not harm institutional sentiment towards the demerged business when it happens.

The perfect synchronistic scenario for Carphone would be for the demerged businesses to both benefit from economic recovery, which many people – including the Confederation of British Industry – believe will begin next spring.

I WROTE here yesterday that, while house prices rising last month at their fastest rate in six years was good news, it would be premature to get carried away.

Housebuilder Bellway's studiedly cautious trading update, also out yesterday, is in line with that sentiment.

The group said that first-time buyers "continue to struggle to raise deposits and consequently access to the first step on the housing ladder remains difficult".

Bellway also said lenders' valuation policies remain inconsistent, and that "cancellation rates are still running at historically high levels".

In short, in the housing industry the green shoots of recovery remain stubbornly spasmodic.

It is true that Bellway and its generally debt-laden peers in the sector are gradually moving out of their focus on debt-reduction strategies over the past 18 months or so. There is some tentative geographical cherry-picking going on. Bellway, for instance, reckons its southern divisions will have much better prospects by the year-end than in the Midlands and northern England.

But there is unlikely to be any vaulting recovery in the housing sector either this year, or indeed in 2010.

My guess is that, against the backdrop of the economic downturn and fears of unemployment, any housing recovery will be a drawn-out affair.

THE south of England has the reputation of being the most prosperous region of Britain – and the resilient sales performance by London-based pubs operator Fuller, Smith & Turner (FST) supports that view.

In the strongest performance reported by any of the listed pub operators so far this year, FST said like-for-like sales at its 163 pubs spread across southern England rose 3 per cent in its latest trading year, to 28 March.

Even though up against tougher comparatives in the first nine weeks of the current year (May last year had exceptionally good weather) FST has also managed a 1.8 per cent sales rise. The stock is a buy.