Broker tips: TalkTalk, Centrica, Aldermore
RBC cut its target price on TalkTalk shares, telling clients the firm's plans to fix its falling subscription and revenue per user numbers will take time.
In a research report published on Thursday, but dated 10 May, the broker said TalkTalk's subscriber adds appeared to have turned a corner in the fourth quarter.
Additions totalled 22,000, likely helped by reduced 'churn' as its fixed low-price plans drove customers to lock-in lower prices.
However, in turn that is driving part of the drop in its average revenues per user, the broker pointed out.
"With c.36% of retail customers now on FLPP, there is scope for further ARPU weakness, though we believe the subs numbers should start to build slowly from here."
JPMorgan Cazenove downgraded British Gas owner Centrica to 'underweight' from 'overweight' and slashed the price target to 180p from 265p, highlighting the "unsettling reality" of UK supply market changes.
The bank said that despite the strength of Centrica's UK supply operations, two issues have arisen recently which concern it.
Firstly, it sees significant downside from the price regulation of Centrica's Standard Variable Tariff customer base. Its initial view of the damage to earnings per share was negative, but manageable at -10% to -20. However, the bank's analysis of Ofgem’s regulated prepayment meter tariffs points to a deeper EPS erosion at up to -42%.
The bank said it has carried out a full review of Ofgem’s PPM tariff materials, which has alarming implications for Centrica's supply margins. "For instance, if regulated price caps were in place in 2016 we estimate that dual fuel bills would have been a full £100/customer lower on average for the Big 6."
Shares in Aldermore are far too cheap, said analysts at Investec, describing the challenger bank's first quarter 2017 performance as "exceptionally strong" and "outstanding".
Investec's Ian Gordon reiterated his 'buy' recommendation and 290.0 target price.
Gordon said he welcomed the skew in the lender's growth towards "low-risk" buy-to-let mortgages even though that is where gross yields are below the group average.
The analyst adds that the move down the risk curve means that consensus impairment forecasts remained too high.
Trading on 8.1 times analysts' estimates for the lender's 2017 profits, the shares remained "by far" the cheapest under his coverage.