Credit Suisse slashes Talk Talk target, sceptical of company's growth targets
19-02-2018 13:46
Analysts at Credit Suisse reiterated their 'underperform' stance on shares of TalkTalk, slashing their target price in the process, to reflect the company's £200m share placing and its analysts' now lower medium-term forecasts for the firm's operating profits.
For example, the Swiss broker thought it unlikely the company would be able to hit management's forecast for EBITDA growth of 15% in fiscal year 2019, penciling in an increase of 7% instead.
In a nut shell, the Swiss broker believed TalkTalk's weaker growth prospects justified a lower valuation.
At their new target price of 90p, which was down from 140p previously, the stock would be left trading at an EV/EBITDA multiple of 6.3, a similar rating to that of the sector, which was facing low-single digit rates of growth in EBITDA "over the next few years".
More specifically, FTTH build in the UK was continuing to ramp slowly, thus putting pressure on DSL unbundlers such as TalkTalk, Credit Suisse said.
There was also the risk to DSL from mobile substitution, analyst Paul Sidney said to clients in a research note.
"TalkTalk's own 3m fibre JV with M&G announced last week may allow it to partly offset pressure from these headwinds but this is likely to be some years away with the JV yet to identify which areas of the UK it will target," Sydney added.
All told, Credit Suisse trimmed its medium-term forecasts for the rate of growth in the company's revenues between 2018 and 2020 by between 1% and 2% and those for its EBITDA over the same time horizon by up to 15%.
It also reduced its free cash flow projections by between 8% to 13%.
