SocGen hangs up on TalkTalk as it highlights deteriorating fundamentals

Societe Generale downgraded TalkTalk to ‘sell’ from ‘hold’ and slashed its price target to 190p from 320p.

“Of course the cyber attack on 21 October was awful news. But more of a concern to us is how quickly TalkTalk fundamentals seem to have been deteriorating even before the attack hit,” the bank said.

SocGen said it’s pencilling in a tough second half as the company fights to save subscribers. In addition, the bank is concerned there will be little improvement into full year 2017 as weak gross adds and churn, low pricing power and sliding gross margins offset savings benefits.

“We assume a slow recovery at best, rising debt and a halved dividend.”

It said the greatest surprise from TalkTalk’s first half results was just how weak the underlying business is performing.

Even with savings, the bank has EBITDA down another 12% next year, leading to low medium-term margins and high debt, which could keep rising on its estimates unless the dividend is cut.

The bank cut its full year 2016 dividend estimate by 50% to 8p per share and downgraded its earnings per share estimates for 2016 and 2017 by 53% and 83% respectively.

At 0943 GMT, TalkTalk shares were down 1.4% to 238.60p.