It may be good to talktalk, as the television adverts tell us, but it is also expensive. Carphone Warehouse admits that its aggressive move into fixed-line telecoms, where it hopes to became the main opposition to BT, will run up a £7-8m loss in the current financial year.
A higher marketing spend, mainly using telephone sales centres and posting direct sales staff at strategic points such as supermarkets and airports, will wipe out the £3m profit that had previously been expected.
A change in accounting policy, so that the cost of winning new customers is counted immediately rather than spread over 12 months, is responsible for the loss. The effect will be particularly brutal this year, since new customers recruited later in the year will contribute little to this year's revenues in the short time available. Charles Dunstone, the chief executive, says he has not come under pressure from the accounting police but the change does accord with the general trend to prudent accounting. It means profits will be improved in future years, particularly 2004-05 when the effects have worked through.
Mr Dunstone says he hopes to have 400,000 talktalk customers by next March, double the previous target, and up to 700,000 by March 2005. The current figure is 140,000.
The original retailing side now accounts for only 40 per cent of turnover. That is good news, since the network side of the business produces recurring revenue and profits. But retail is still buoyant thanks to the price war sparked by 3. Mr Dunstone says: "From handset vendors to networks we see a lot of competitive tension and look forward to a bumper third quarter. It's not just in the UK. In every market you can find someone stirring things up."
The shares traded 5.25p lower at 129.25p. They have already run up from 50p in March and are worth holding, while any weakness would present a buying opportunity.
Take profits at Character Group
Strawberry Shortcake is back. So is the Cat in the Hat. Parents who have reached a certain age, and who have small grandchildren, will welcome the return of such wholesome and educational cartoon personalities.
Character Group, which buys up merchandising rights to games and television series for children, has struck three deals with US companies. Cute little Strawberry Shortcake, a big hit in the 1980s, will be launched in February under a toys licence for the UK. Universal Studios will allow Character to distribute in this country toys inspired by a new Cat in the Hat film starring Mike Myers. And Character also has the rights to a range of toys from MGA, including 4-Ever Best Friends dolls and remote control cars.
The deals livened up an otherwise fairly flat statement suggesting that trading in the year to August was in line with forecasts. The shares rose 4.5p to 146.5p. This time last year they were only 30p.
Investors should be aware the board has a tight grip on the shares, although executive Joe Kissane did sell 200,000 in August to improve liquidity and more sales could follow.
Children are remarkably fickle and the popularity of individual characters can be short lived. Notwithstanding the latest deals, this could be a good time to take profits.
Time to relegate Newcastle United
What's black and white and red all over? No longer Newcastle United after the club announced it made a £4.4m profit before tax for the year to July, turning round a loss of £3.1m last time.
Unfortunately this may be temporary, as an early exit from the European Champions League will cost the club estimated profits of £10m and the troubled team, currently languishing in the bottom three of the Premiership, looks unlikely to return to the competition next season.
Newcastle's rising wage bill and its heavy dependence on its septuagenarian manager, Sir Bobby Robson - evidenced by a plunge in the share price last week on rumours of his resignation - adds to the inherent risks of investing in a football club.
The chairman, Freddy Shepherd, predicts growth from merchandising and television operations in the Far East but this looks some way off and the size of future returns will be directly related to performances on the pitch.
Also, problems with debt mean the club will struggle to make significant player signings when the transfer window reopens in January.
A lot of people have a soft spot for Newcastle United but the stock market dances to a different toon. Sell.Reuse content