RBC drops the phone on TalkTalk, cuts target

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.

The target revision from 225.0p to 185.0p came on the heels of the mobile telephony and broadband services provider's profit warning.

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."

Higher subscription acquisition and marketing costs also depress EBITDA when subscription numbers are growing, the broker said.

On the upside, the company offers a tempting combination of M&A optionality and self-help, RBC said.

Yet it "remains a long road", which led its analysts to retain their 'sector perform' recommendation on the shares.