German broker Berenberg has downgraded its rating for broadband and telecoms provider Talktalk Telecom Group PLC (LON:TALK) in a note flagging up uncertainties in the UK telecoms sector.
The broker’s analysts cut their stance on the FTSE 250-listed firm to ‘sell’ from ‘hold’ after chopping its target price by 37%, to 140p from 224p and reducing their underlying earnings (EBITDA) estimates by 13-19% for full-year 2018-2020.
READ: TalkTalk slumps after Goldman Sachs downgrades to sell
In reaction, TalkTalk shares were 1.9%, or 3.2p lower at 168.6p.
In a note to clients, the analysts said: “We think the UK telecoms market faces continued uncertainty and gradually intensifying competition due to several factors.
“The recent period of regulatory uncertainty has a way to go, with the impact of Ofcom’s various proposals yet to be felt in sector financials.”
They added: “We think competition will gradually intensify in both consumer broadband and mobile markets, with more jostling for position between operators, and less scope to raise prices, in our view.”
UK consumer survey flags up challenges
The analysts said, against this backdrop, its recent survey of 5,000 UK consumers “gives good insights into which operators face challenges and which are well positioned. “
In its consumer broadband survey, they said TalkTalk ranks poorly, while rivals Vodafone PLC (LON:VOD) and Virgin Media rank well.
The analysts think TalkTalk, BT Group plc (LON:BT.A) and Sky PLC (LONSKY) will cede broadband share to Virgin Media, Vodafone and smaller fibre players in the long-term.
TalkTalk and Vodafone rank poorly in mobile survey
Meanwhile in its consumer mobile survey, TalkTalk and Vodafone rank poorly, with Tesco PLC’s (LON:TSCO) Mobile business and Telefonica-owned O2 ranking well.
The analysts said the two poorly ranked firms look exposed to customers’ underlying churn intentions in mobile, which may hold back TalkTalk’s margins and could delay UK margin recovery for Vodafone.
They added that, with the exception of Three, they expect a gradual shift of service revenue share from mobile network operators to virtual network operators like Tesco Mobile, Sky Mobile and Virgin Media.
BT Group target cut, but Vodafone’s hiked
Berenberg also cut its target price for BT Group to 325p from 343p after reducing its EBITDA estimates by 1-2% for full-year 2018-2020 while maintaining a ‘hold’ rating on the stock.
For Vodafone, it modestly increased its price target to 259p from 250p, maintaining a ‘buy’ rating on the stock which remains its favoured UK telco.
Vodafone shares were 0.9%, or 2.0p higher at 223.05p, also helped by a target price hike from Deutsche Bank, while BT Group shares were up 0.7%, or 2.15p at 296.90p.