TeamTalk cuts annual earnings guidance, reviews management structure

Friday 7th June 2013

TeamTalk, the owner of the CityLink fibre-optic broadband service, cut earnings guidance for a second time and is reviewing its management structure to try to bed in its Farmside Group acquisition.

The Wellington-based company expects second-half earnings before interest, tax depreciation and amortisation a "little lower" than $5.14 million, having previously flagged a "modest lift," it said in a statement. Net profit will be "knocked around a bit" as it brings the Farmside rural telecommunications business under its umbrella.

TeamTalk's board has decided to review its management structure and resource the company in line with its findings to help the transition into a larger group.

"A new management team usually takes some time to get up to speed, so we are expecting we'll have to slow down a bit until they get their teeth into the business fully," managing director David Ware said. "Gaps are appearing as the larger companies consolidate their businesses and we have lots of exciting opportunities to pursue."

The shares fell 1.2 percent to $1.15 today, and have shed 8.8 percent this year. The stock is rated a 'buy' by Forsyth Barr analyst Andrew Harvey-Green, who has a target price of $2.95, according to Reuters data.

TeamTalk cut its earnings guidance in February blaming the government-imposed Telecommunications Development Levy, which is used to fund services to unprofitable customers in remote areas.

The company said earnings at its Farmside unit have stalled at 2012 levels, and has faced higher costs to reposition it than expected. That means the result will miss the sales threshold for TeamTalk to pay an additional $7 million cash and $4.1 million in scrip in potential earn-outs.

TeamTalk bought Farmside for an upfront payment of $19 million in cash and $12 million in shares.

BusinessDesk.co.nz

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