Talktalk Telecom Group PLC (LON:TALK) shares dropped after Barclays downgraded its rating on the stock to ‘equal weight’ from ‘overweight’ on valuation grounds and lifted the target price to 215p and 185p.
Barclays expects the company’s first half interims on 15 November to show improving revenues with churn remaining low at about 1.3% and a pick-up in average revenue per user.
However, the bank sees no “significant change in earnings trajectory” as the company focuses on growing the customer base and repositioning its mobile strategy.
In July, TalkTalk reported a 3.2% decline in first quarter revenue as growth in corporate and wholesale broadband was offset by a slowdown in its consumer division. During the period it added 20,000 broadband customers on its network in the first quarter while churn fell to 1.2%, supported by the take-up of fixed-low price plans.
Barclays estimates the revenue decline will ease to 1% in the second quarter, supported by its move to raise prices for broadband and mobile customers from 1 August.
The bank added that it sees an opportunity for TalkTalk to co-invest with Openreach on its roll-out of ultrafast fibre-optic broadband.
Openreach is currently consulting with stakeholders to help invest in building large-scale new infrastructure to replace ageing copper telephone lines.
“We believe the economics of co-investment could also be very attractive (see body of note), boosting medium term value,” said Barclays. “The balance sheet does provide a constraint, however.”
Shares in TalkTalk fell 6.38% to 204.09p in afternoon trading.