Join our community of smart investors

TalkTalk reassures investors after hack

The company's shares might have rebounded after their sharp fall, but investors will want firm reassurances that a breach won't happen again
October 30, 2015

UPDATE (30/10/15): TalkTalk says the amount of data stolen during the cyber attack was less than previously thought. Management says that fewer than 21,000 bank account numbers and sort codes, 28,000 obscured credit and debit card details, 15,000 customer dates of birth and 1.2m customer email addresses, names and phone numbers were accessed - the group has more than 4m customers.

IC TIP: Hold

It has been a rollercoaster ride for shareholders in TalkTalk (TALK) this week. Investors sent the shares down 16 per cent in two days after the telecom group's website was hacked and management received a ransom demand. But news the police arrested a suspect in connection with the attack - along with a statement from TalkTalk reassuring consumers that the details taken couldn't be used to access bank accounts - pushed its shares back up 13 per cent the following day.

The TV, broadband, mobile and fixed-line telephony provider may not be out of the woods quite yet, though. It could face a flurry of compensation claims and an investigation into its cyber security measures - it has suffered three cyber attacks in the past year. Moreover, customers won't be pleased that their names, addresses, phone numbers and other information have fallen into the wrong hands. Some may decide to cancel their subscriptions to the group's services, and fewer people may sign up in the first place. The incident could see TalkTalk lose its lustre with customers: YouGov's BrandIndex tool, which measures sentiment surrounding various brands, has recorded a sharp rise in negative mentions of the group this week.

Investors will be hungry for reassurance when TalkTalk reports first-half results on 10 November. In the first quarter to 30 June, the group posted strong gains in its mobile business, but fierce promotional activity weighed on trading in its broadband division. Management also said it expected to report a 5 per cent rise in full-year sales and strong growth in cash profits and free cash flow. Moreover, it is targeting compounded annual revenue growth of 5 per cent for the next two financial years, and hopes to expand its cash profit margin to 25 per cent for the year to March 2017.

The fiasco could drive business for cyber security groups such as BAE Systems, which TalkTalk has hired to investigate the recent hack. Other examples include NCC - which recently acquired Accumuli, a cyber security consultancy and software provider - as well as GB Group, Eckoh, Corero Network Security, Intercede and Falanx.

Analysts at New Street Research warned that it would take time for "the direct and indirect costs of this attack to become apparent". TalkTalk will certainly have to invest in technology and communicate with and compensate customers, and management could be on damage-control duty for a while. The analysts expect EPS of 8.9p in the year to March 2016, up from 7.8p last financial year.