Negative broker comment weighed on Talktalk Telecom Group PLC (LON:TALK) today, with Haitong trimming its forecasts and fair value price for the firm following last week’s trading update and the appointment of Charles Dunstone as its executive chairman.
In mid morning trading, shares in the FTSE 250-listed telecoms and broadband provider were down 1.7%, or 2.8p at 165.5p.
Haitong has reduced its discounted cashflow-based fair value for Talktalk to 115p from 125p and reiterated a ‘sell’ rating on the stock.
The broker also moved its forecast for a dividend cut by Talktalk back a year, but increased the scale of it to 50% from 40%.
In a note to clients, analyst John Karidis said: “We believe Mr Dunstone has taken back management control, as Executive Chairman, partly because TALK as is today cannot be disposed of at an attractive price.
“More importantly, we struggle to believe that because Mr Dunstone is now in charge TALK is much more likely to prevail over the big challenges facing it.”
Wholesale charges …
He added: “When Mr Dunstone was last in charge TALK’s main opex item (BT’s copper wholesale charges) was set by Ofcom to achieve its core aim then: to boost customer take-up of broadband connectivity.
“Today, demand for ever bigger bundles of services keeps growing apace so BT’s copper wholesale charges are just one of TALK’s big opex items (others include fibre and mobile wholesale charges, and hardware costs; note that none of these are set by regulators).”
The analyst noted that Ofcom will unveil specific proposals for BT Group’s wholesale prices this Spring, and said BT’s fibre charges will rise if the regulator, in keeping with the regulator’s core aim it now assesses these based on new entrant rather than BT’s costs.
Karidis concluded that, relative to its much bigger rivals, “TALK is likely less able to absorb higher network costs.”