Today I’ll be taking a closer look at telecoms group TalkTalk Telecom (LSE: TALK), and international banking giant HSBC (LSE: HSBA). Should you be buying these shares after recent news?
Cyber setback
It’s been a tough year for TalkTalk Telecom, with the cyber attack on the company’s website last October damaging both the firm’s reputation and its bottom line. Full-year results revealed a fall in pre-tax profits to £14m, down from the £32m reported for FY 2015, despite higher revenues of £1.84bn. The fall in profits was mainly due to £83m in exceptional costs, of which £42m related to the cyber attack, with the remainder incurred as part of the company’s restructuring programme.
The City is expecting a strong recovery in the medium term, with analysts predicting an impressive 74% rise in earnings this year, followed by a further 22% improvement for fiscal 2018. At current levels the shares are trading on 17 times forecast earnings for the current year, falling to 14 times for the year ending March 2018.
Despite this year’s setbacks, TalkTalk is expected to continue with its healthy dividend payouts, with prospective yields forecast at 6% for this year and next. In my opinion the shares offer great value for growth-focused investors, as well as strong dividends payouts for those seeking chunky income.
Contrarian opportunity
Europe’s largest bank HSBC is chopping 840 IT jobs in the UK as part of a restructuring and cost-cutting plan that will see a total of 8,000 British job losses by the end of 2017. The global banking giant is planning to establish similar IT roles overseas in order to reduce costs. HSBC has been seen by many as the best of a bad bunch since the financial crisis, and in my opinion could be best-placed to rebound when investor sentiment improves in the coming years.
The shares continue to suffer from poor sentiment in the banking sector and have fallen 31% during the last 12 months. So could this be a buying opportunity for contrarian investors? I think it could be. Consensus forecasts suggest a 9% drop in earnings this year to £8.1bn, followed by an 8% rebound to £8.8bn for the year to December 2017. This would leave the shares trading on just 10 times forecast earnings for the next two years.
The hefty share price fall has also meant that dividends yields look more appealing, with the bank forecast to pay 34.11p per share for this year, increasing to 34.49p next year, giving prospective yields of 7.9% and 8%, respectively. HSBC looks like a good contrarian play to me given the ultra-low earnings multiples. But the main attraction is the chunky dividend payouts that income investors might find hard to resist.