Barclays has upgraded internet and mobile phone services provider Talktalk Telecom Group PLC (LON:TALK) to ‘overweight’ as it believes operating trends are set to improve.
The broker had downgraded the stock to ‘equal weight’ back in October on valuation grounds, since when the shares have plunged from 204p to around 132.6p. It is now up 7.3% on the day after Barclays’ upgrade.
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“TalkTalk has suffered market share losses in the past few years, negative earnings momentum, and rising leverage; however, 12 months on from its strategy ‘reset’, we see a return to top-line growth with our/consensus earnings estimates seeming to have bottomed,” the bank noted.
In a note on the whole of the European telecoms sector, Barclays argues that “challengers” such as TalkTalk are set to fight back after years of incumbents squeezing them and making the most of their network infrastructure.
“We see challengers increasingly having more effective tools with which to profitably fight back, jeopardizing incumbent retail and wholesale businesses. We believe incumbents will need to consider forms of separation in order to derisk future cash-flows and boost return on capital,” the bank said.
Barclays has a price target of 150p for TalkTalk.