Deutsche Bank initiates coverage of TalkTalk Telecom at 'buy'

Deutsche Bank initiated its coverage of TalkTalk Telecom Group with a ‘buy’ rating and target price of 300p on Wednesday.

“TalkTalk shares are cheaper than they were, expectations are lower, and management is now more focused on profitability than growth, rather than both,” said Deutsche Bank

“We worry that the UK market is becoming more competitive as convergence takes hold but arguably TalkTalk as a lower price broadband and mobile supplier and the only alternative broadband wholesaler to BT, when two mobile network operators have yet to declare a facilities management strategy, is less at risk than its premium price peers.”

Deutsche Bank said the hacking of TalkTalk’s website in October exacerbated a fall in the company’s share price, which is still 46% down from its peak, had benefited from expectations of further consolidation post BT’s bid for EE.

While consensus expectations for full year 2017 have fallen by one third since last summer and top line growth turned negative in the fourth quarter, Deutsche Bank said there are a number of offsetting factors ahead. Lower ethernet pricing and better quality of service at telephone cable owner Openreach should help business this year, the bank said, along with dark fibre and duct and pole access.

“Further, opportunities around fibre, mobility and mergers and acquisitions are not without value.”

Shares fell 0.05% to 219p at 1037 BST.