Investors were hanging up on Talktalk Telecom Group PLC (LON:TALK) after heavyweight broker Citi suggested a dividend cut may be in order.
Analyst Simon Weedon kept his ‘sell’ rating in place but lowered his price target to 150p (from 180p) on fears that the company’s debt covenants will force it to rethink its dividend policy.
“[Second quarter results] showed that TalkTalk's improved net add momentum is requiring more opex than had been expected by management or by us,” wrote Weedon in a note.
“On our estimates the group will exceed 3.0x EBITDA in March 2018 (3.11x) and will also exceed 2.75x in March 2019 (2.88x) implying Senior Note covenants might prevent payment of a dividend.”
Earlier this month Talktalk boss Trsitia Harrison poured cold water on concerns the FTSE 250 group may have to cancel its dividend as it swung into the red in the first half of the year.
READ: Talktalk chairman cuts “insane” dividend yield after weak results
Talktalk has already been forced to trim its payout once in 2017, halving last year’s final divi back in May on the back of a weak set of full-year results.
Shares are down 1.8% to 165.4p.