TalkTalk climbs on talk of price controls backfiring

A prediction that broadband price controls will backfire helped lift TalkTalk to a five-month high on Friday.

Last month’s move by telecoms regulator Ofcom to cap wholesale rates will result in lower network investment both from BT and its competitors, HSBC forecast.

Demand for superfast services will be stifled and pricing power suppressed because Ofcom is cutting the cost of fibre lines offering speeds of up to 40 Mbps, which will be adequate for most people, the broker argued.

Investment in faster services only invites further regulation so, rather than being incentivised to build their own networks, BT competitors will be better off reselling BT’s infrastructure, said HSBC. That makes TalkTalk “an obvious beneficiary”, it argued.

HSBC set a 250p target on TalkTalk, which climbed 4.7 per cent to 197.8p. Since hitting a five-year low last year in the wake of a cyber attack, the stock has rebounded by 30 per cent.

A mixed wider market left the FTSE 100 little changed, drifting 3.99 points at 7,114.55.

Marks and Spencer took on 1.9 per cent to 360.5p after Barclays started coverage with “overweight” advice and a 410p target.

Its valuation was based largely on M&S’s food business, which Barclays forecast to account for 64 per cent of UK sales by the end of 2020.

M&S’s target to add a further 200 Simply Food stores over the next two years, from about 600 currently, involves lower risk than its previous failed expansions because half the stores to be franchised and conversions will account for 45 more, Barclays said.

The broker also argued that M&S’s niche as an upscale convenience store rather than a weekly shop supermarket means it should work in most areas of the UK, and is relatively unthreatened by the hard discounters.

Restaurant Group lost 2.5 per cent to 256.4p on news that its finance director, Barry Nightingale, was stepping down with immediate effect after less than 10 months in the job.

His departure follows Restaurant Group’s appointment in August of Andy McCue as chief executive.

Peel Hunt, cutting Restaurant Group to “hold”, saw continued risk to forecasts as the Frankie & Benny’s owner begins a round of “immediate and painful” price cuts to encourage repeat visitors.

Lower menu prices mean the company’s target to return to like-for-like sales growth is likely to move from the end of 2017 to the middle of 2018, as winning back customers will not be immediate, Peel Hunt said.

Sports Direct was 2.2 per cent lower at 308p after confirming its entry into the US retail market by buying Eastern Mountain Stores and Bob’s Stores out of bankruptcy proceedings for $101m cash.

Filter maker Essentra faded 3.9 per cent to 512p on a Citigroup downgrade to “sell”, largely on valuation grounds.