Shares in telco TalkTalk plc (LON:TALK) were off 2.6% early on after a downgrade by RBC Capital.
The mid-ranked Canadian bank, not an outfit you’d normally associate with moving stocks in ths way, cut its recommendation to ‘sector perform’ from ‘outperform’ along with its valuation, which moved to 190p from 225p. The current price is 174p.
READ: TalkTalk in the red as it swings to a half-year loss and trims outlook on restructuring costs
It said while TalkTalk’s low-price broadband and TV packages are driving subscriber growth, they were doing so at the expense of profit margins.
“With profitability unlikely to return before the first fixed low price plan subscribers start to come off contract (early 2018) and leverage remaining high, we now feel risks outweigh the limited upside,” RBC said in a note to clients.
It said it had lowered its earnings guidance following the latest update from the TalkTalk in which it said EBITDA would be at the “bottom end” of the range, which currently stands at £270-£300mln.
READ: TalkTalk slumps after Barclays downgrades to 'equal weight' on valuation grounds
RBC has shaved 9% from its forecast for full-year 2018 EBITDA, taking it to a below-consensus £260mln. It’s knocked 8% from its 2019 guidance. It also pointed out the firm’s wiggle room over dividend payments is limited by the covenants on its debts.
Of the 13 analysts logged as following TalkTalk, nine are ‘sellers’ of the stock and only one has a ‘buy’ recommendation. The remainder think the shares are fully valued. The consensus price target currently stands at 167p.