November 13, 2015    3 minute read

Is TalkTalk still a safe investment?

   November 13, 2015    3 minute read

Is TalkTalk still a safe investment?

TalkTalk, a staple brand in the FTSE250 may be on the verge of a meltdown after news arose that the telecoms giant was subject to a large scale hack – one of the four detained was a 15 year old boy. TalkTalk, only the second UK company after Virgin Media to provide TV, Broadband, Phone and Mobile services (referred to as quadruple-play) has come a long way in establishing itself as high on value since its inception as a subsidiary of the Carphone Warehouse in 2003. In May 2015, the stock hits its peak at 403p before hitting two dips in June 2015 and October 2015 finding itself at around 225p – the latter a drop of 28.5% in a space of two weeks.

Following one of the largest scale cyber attack on a British company, it may come to no surprise that there was an essence of panic encapsulating customers when they came to realise that their account details had been leaked. The full extent of the damage to TalkTalk is estimated at £35m from the initial hack in October 2015 with an approximate 157,000 customers affected from the leak. The scurry that ensued for the people impacted trying to connect to customer services were met with unfulfilled promises of 24hr callbacks, busy online chats and a plethora of phishing calls. This dent in reputation was not welcome seeing as TalkTalk was already ranked one of the worst telecoms for customer services prior to the incident. This has led to many aggrieved accounts on social media, madhatter2 said

“Plenty of customers [are] sick and tired of TalkTalk’s shambolic service at the present time.”

TalkTalk are however offering compensation to every customer with a free upgrade. One would expect a large outflow of customers to competitors however under original terms in contract agreements with TalkTalk, a sizeable fee would be inflicted if you were to cancel with immediate effect.  Furthermore, only if there has been a “direct impact” on one’s bank account will TalkTalk allow you to leave, this being said this criterion is highly unlikely to be met. This has led to TalkTalk CEO Dido Harding stating that “the early warning signs are encouraging” with the number of people leaving said to be lower than expected. This has been reflected in the share price where there has been a fightback with the share increasing by almost 12pc on Wednesday 11 2015 after half-year reports showed that revenues were up 6pc with a pre-tax profit of £300m. These numbers would allow TalkTalk to swallow the brunt of the damage however there are questions over the longevity of the company.

Amid talks of the £10bn merger in the mobile phone market between 3 and o2, there is a large possibility that TalkTalk could get margined out by the oligopoly in place. Having the merger go through would see a total market share of 41pc while TalkTalk can’t even muster a tenth of that. This is a large revenue driver for TalkTalk which saw an increase in 16pc in the first 6 months of the year in their mobile base alone. With such exposure and the current dynamic in the industry, one would not rule out a takeover for TalkTalk and as a result of recent events the bids would be considerably lower than that just 6 months ago. It would therefore be much wiser to wait if any speculation surfaces.

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