TalkTalk rallies on dividend surprise; hack cost estimated at up to GBP35m

Shares in TalkTalk rallied after it surprised the market by lifting its interim dividend, as it estimated the one-off financial impact of the cyber attack that occurred in October at between £30m and £35m.

Bank of America Merrill Lynch said the estimate was half what it had expected, while Societe Generale said: "Guidance of a £30-35m impact on EBITDA this year is not a disaster; the question is how material the impact will be on FY17 and whether it is wise to maintain the dividend guidance.”

The telecommunications company said earnings before interest, taxes, depreciation and amortisation fell to £90m in the first half of the year from £110m in the same period last year, missing expectations of around £98m.

However, it raised its interim dividend 15% from last year to 5.29p – a move that is likely to surprise analysts and investors who had been expecting a cut.

Revenue rose 4.7% to £912m, beating expectations.

TalkTalk said that while it is still too early to assess the wider impact of the attack on the business, early data on churn and retention activity in the days since it happened is encouraging.

In addition, the company said it remains confident of delivering 2016 results in line with market expectations before the cyber attack, as it benefits from continued strong revenue growth, improving gross margin and lower operating costs.

Chief executive Dido Harding said, “We have delivered H1 results in line with our plan and revenue growth accelerated strongly through the second quarter. We have a robust plan to deliver a significant step-up in profits in H2, underpinned by the benefits of our transformation programme coming through strongly.

“We have recently been able to confirm that far fewer people were impacted by the attack than originally feared. However, TalkTalk takes the security of customers' data extremely seriously and we are taking significant further steps to ensure our systems are protected, as well as writing to all our customers outlining what we are doing to keep their data safe.”

TalkTalk said last week that the cyber attack it suffered in October was a lot smaller than originally suspected, with 4% of customers affected.

It said a total of 156,959 customers’ bank details were accessed, of which 15,656 bank account numbers and sort codes were seen. In addition, it said the 28,000 obscured credit and debit card numbers that were accessed cannot be used for financial transactions and were ‘orphaned’, meaning customers cannot be identified by the stolen data.

The four people who have been arrested in connection with the hack – three of them teenagers – have all been released on bail pending further investigation.

Nomura, which rates the stock at ‘reduce’, said: “TalkTalk’s decision to stick with its dividend policy of 15% growth in spite of the current business uncertainty may provide some short-term relief for the stock but a combination of weak EBITDA and weak KPIs adds to our concerns around the long-term prospects of this business.”

At 1220 GMT, shares were up 11% to 240.40p.