HSBC downgrades TalkTalk on 'far-ranging' impact of data hack

“While we do not believe that TalkTalk faces an existential risk from this hack, the implications for the company are potentially far-ranging. The company has issued two updates following the incident, and in light of those, we have reappraised our view of its near-term prospects.”

The bank cut its full-year 2017 estimate for earnings before interest, tax, depreciation and amortisation by 15%, pointing to lower than previously expected broadband customers, a loss of pricing power and lower potential for cost reduction due to the support costs associated with increased churn.

Additional – albeit lesser – concerns include a rising cost to win gross additions and the direct cost of any compensation linked to the hack, HSBC said.

It said the combination of the uncertainty surrounding these factors and the need for management to take a long-term perspective on the business, which may require incremental investment, have led the bank to believe management should drop its FY 2017 EBITDA margin guidance.

HSBC said that although the number of affected customers is small in the context of the total base, at less than than 4%, that does not prevent the potential impact of the data breach being far wider-ranging.

The bank added that while the share price discounts much bad news, positive catalysts are scarce.

At 0930 GMT, TalkTalk shares were down 4.7% at 215.50p.