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TalkTalk concerns overdone, RBC upgrades
RBC Capital Markets upgraded its rating on telecom group TalkTalk to 'outperform' on Thursday, saying that while not without issues, they believed concerns over the firm's balance sheet seemed to be overdone.
RBC stated that with TalkTalk's revenues on the mend thanks to an uptick in subscribers in the fourth-quarter due to a solid adoption rate of its fixed low-price plans (FLPP), the top-line growth should reach around 1.4% in 2019, before revenue began to accelerate at a rate of around 2.7% in its 2020 trading year.
The price target was lowered to 150p from 190p with the analysts saying the change was mainly driven by a more conservative assumption on TalkTalk's corporate business. "We had previously valued this at 14x EBITDA, in line with Gamma, and lower this to 10x. We also lower our estimates, factoring in a more conservative ARPU estimate."
The analysts highlighted Ofcom's proposed 40mbps fibre price, due to be implemented before 1 April, as another potential saviour to TalkTalk's squeezed margins. Saving the group as much as £50m by 2021.
"The balance sheet, whilst stretched, is not in danger, in our view. Peak leverage is at 3.1x in FY2018, comfortably below covenants at 4.0x," the report read.
As of 1645 GMT, shares had gained 3.45% to 123.10p.