Berenberg downgrades TalkTalk to 'sell'

Berenberg downgraded its stance on TalkTalk to 'sell' from 'hold' and slashed the price target to 140p from 224p saying the company has a mountain to climb to get back to sustainable profit growth.

The bank said TalkTalk ranked ninth out of nine in its consumer broadband survey, scoring poorly for churn risk, network quality and customer service, value-for-money and customer endorsements. In its mobile survey, the group ranked seventh out of 10, but still scored poorly on network quality, customer service, customer endorsements and Ofcom complaints.

"The results suggest that TalkTalk faces significant challenges to bring down churn on a sustainable basis," Berenberg said.

The bank said its survey results suggest TalkTalk will face cost risk as it tries to bring down churn on a sustainable basis. It also showed the company is not a “go-to” destination for other operators churning customers, a status that will be difficult and costly to change.

"The alternative is for TalkTalk to prevent its own customers from leaving. The results of last year’s tariff change showed some success on this front, but such moves (eg re-contract for 24 months and get a cheaper price) provide a temporary fix."

If a more permanent fix for customer loyalty cannot be found, then TalkTalk will have to spend more on subscriber acquisition costs and marketing instead.

At 0926 BST, the shares were down 1.4% to 169.40p.