Carphone Warehouse hit by tight mortgage market

13 June 2008 / by Rebecca Sargent
Carphone Warehouse has become the latest, although unlikely, victim of the housing slump as its shares fell by more than 10 per cent yesterday following its disconcerting preliminary results for 2007/2008.

It is not just estate agents and re-mortgagers that have been affected by a reluctance to lend, it appears broadband providers and suppliers of mobile phones are suffering too.

According to experts, most new broadband customers are acquired when they have moved home, but the current housing market situation means that nobody is moving, which is having a knock-on effect on new broadband customers.

And it is not just a lack of available mortgage products that is affecting Carphone Warehouse's customer base, new mobile broadband technology has added to the blow. Charles Dunstone, company CEO, said:

"Broadband net adds so far this year are lower than expected. The slowdown in the housing market and a strong performance in mobile broadband sales in our stores have led to lower gross adds."

However, according to Mr Dunstone, despite disappointing results, 'churn' (the number of customers switching supplier) is lower than other leading telephone and broadband providers. He continued:

"However, this has been offset to some extent by falling churn. If these trends continue, we expect lower revenue growth this year than previously indicated, compensated by improved margins."

The news of a 'very cautious' outlook has come as a shock for experts who did not see this coming. Graham Spooner, investment advisor at The Share Centre, said: "Until recently we listed Carphone Warehouse as a buy for investors, given its successful diversification from mobile phone seller into all round telecoms package provider.

"However, given the present economic climate, the housing downturn and rising inflation levels putting pressure on consumers, we now feel the company is no more than a hold for investors who remain faithful to the management's impressive track record. Carphone Warehouse has already reported that it has seen an impact on the sales of its fixed broadband business."

Highlighting the consequences of the current economic climate, he concluded: "We are also concerned about the company's position in the long term. If its share price continues to fall we could well see Carphone Warehouse drop out of the FTSE100 sooner rather than later."

©Fair Investment Company Ltd