Talktalk Telecom Group PLC (LON:TALK) shares dipped on Wednesday after Berenberg initiated coverage on the telecoms and broadband provider with a ‘sell’ recommendation as it said the firm is “weak and not cheap”.
The German bank slapped an 80p price target on the FTSE 250-listed stock, a 32% discount to Tuesday’s closing price of 116.80p, sending the shares down 1.1% to 115.50p in late morning trading.
In a note to clients, Berenberg's analysts noted that TalkTalk has been hit by declining market share, revenue and profits, while price competition keeps surging.
They pointed out that with "regulation shifting towards incentivising network investment, an area to which TalkTalk is less exposed, it is left in a challenging position."
Over its last nine preliminary results, the group has posted a total of £458mln in “one-off” costs, stripped out from the “headline financials” on which it bases management bonuses, analysts said.
Therefore, statutory earnings per share (EPS) have on average been less than half of “headline EPS”.
The analysts said this has led to dividend overdistribution and higher debt - now at £781mln - having nearly doubled since the firm's demerger from Dixons Carphone PLC (LON:DC.) ten years ago.
To top it off, they added, TalkTalk has a track record of poor customer service as it serves 3mln of the country’s 32mln households.
The Berenberg analysts also pointed out that TalkTalk's board includes some directors classified as independent despite having worked for 20 years with the firm's founder and chairman Charles Dunstone.
However, the analysts noted, a brighter future might come from favourable regulatory decisions, while the imminent sale of network builder FibreNation could also create large opportunities.