Broker tips: Plus500, TalkTalk
Plus500 got a boost on Friday as Peel Hunt upped its stance on the stock to ‘add’ from ‘hold’ and lifted the price target to 1,650p from 1,500p as it took a look at trading platforms.
Commenting on the company’s brief pre-close update on 27 December, the brokerage noted that strong trading momentum continued into December, underpinned by significant market volatility during the fourth quarter.
Peel upped its 2018 pre-tax profit forecast by 4% to $458m after management said the company’s financial performance would be ahead of market expectations.
However, it said on Friday that it had underestimated the quantum of the impact on trading activity and has upgraded its forecast for 2018 pre-tax profit by a further 5% to $492.7m, versus consensus estimates of $496m, underpinned by momentum in non-European revenue.
Analysts were impressed by third quarter customer numbers from telecommunications outfit TalkTalk but were concerned as full-year profit guidance was cut significantly below market consensus.
For the full year, TalkTalk lowered its guidance for earnings before interest, tax, depreciation and amortisation by £10-15m for an IFRS 15 accounting adjustment to £245-250m, which does not include £5-10m of costs from the FibreNation joint venture.
RBC Capital Markets noted that, the main "on-net" revenue metric was in line, although TalkTalk had missed on group revenues by 2% due to lower-margin carrier and voice revenues, while average revenue per user was weaker.
Most importantly, RBC said the issue with TalkTalk's update was its earnings guidance - which was significantly below consensus estimates of £258m.
RBC kept its 'sector perform' and 125p target price on TalkTalk unchanged.
Credit Suisse agreed it was a "strong" quarter customer growth for TalkTalk with TalkTalk, but missed its revenue estimate by 2.6% and lamented the cut to EBITDA guidance.
"While we believe TalkTalk has executed very well on subscriber growth over the past few quarters, we have seen the company miss our revenue forecasts for the past 3 quarters and its EBITDA guidance for FY19 has been cut again.
"The key question for us remains how much TalkTalk is discounting price and spending in acquisition costs to achieve this strong subscriber growth."
Credit Suisse rates the shares 'underperform' views the company as "structurally challenged" due to rivals building fibre-to-the-home and the rising risk to DSL from mobile substitution. "TalkTalk's own fibre ambitions remain modest near-term and, in our view, it would need a well-funded partner to successfully build a material fibre footprint in the UK."