As the number of claimants suing the publisher of the Daily Mirror over alleged phone hacking heads towards 50, the company is facing mounting legal costs. However, City analysts are confident Trinity Mirror would have the financial resources to absorb a far higher number of compensation payments.

On Friday Trinity Mirror, publisher of the Daily Mirror, Sunday Mirror and Sunday People, paid out £125,000 in damages to the first six claimants, including actor Christopher Eccleston and former England football manager Sven-Goran Eriksson.

The publicity accompanying the company’s admission last week of liability over phone hacking, after years of denials, could start a flood of further claims. “I strongly believe this is the tip of the iceberg,” says Chris Hutchings, a solicitor at law firm Hamlins, which is representing a number of clients suing Trinity Mirror. “For every case being settled new cases are popping up. We are getting a steady flow of inquiries by people notified by police that relate to the Mirror. Dan Evans was the key that opened the Pandora’s box[for the Mirror].” Ex-News of the World journalist Evans, who also worked at the Sunday Mirror from 2003 to 2005, has admitted phone hacking and co-operated extensively with police and prosecutors.

In July Trinity Mirror told investors that £4m had been set aside for phone-hacking costs; it has a total provision of £9m classified as “other” on its books that could be used. Hutchings believes that is a “quite optimistic” expectation of a cost cap, especially given News Corporation has paid out $551m in three years to the end of June, covering 718 cases. “Remember there are also legal costs, which can at least mirror-image the damages award, and insurance against large damages,” he says. “Each successful claimant could cost between £25,000 and £125,000.” The first six payouts made on Friday averaged just under £21,000 each, before extra costs which are likely to double that figure.

With a £460m market capitalisation, Trinity Mirror is a minnow compared to News Corp ($10bn) and 21st Century Fox ($74bn), which is covering some of its sister company’s phone-hacking costs. Yet Alex DeGroote, an analyst at Peel Hunt, says Trinity Mirror is in solid financial shape.

His model works on an average £100,000 cost to Trinity Mirror per successful litigation. “At £100,000 they would need 90 successful litigants to hit that £9m provision, and Trinity appears to be involved mostly in much lower level stuff [than News Corp],” he says. “When Trinity Mirror admitted liability it didn’t move the share price. I’ve spoken to some of the major shareholders and people are relaxed, for now. The question is, will the floodgates now open? They would need an awful lot of litigants to give the market the willies.” The company’s share price did slip on Friday, closing down nearly 6% at 163.75p.

Despite the difficulties faced by the newspaper sector Trinity Mirror has performed robustly. In the past four years the company has reliably produced annual profits of between £90m and £100m, despite declining revenues, and its net debt had been cut to £97m at the end of last year.

DeGroote says that if compensation claims do mount, the key metric to consider is the £60m of cash the company annually produces as “free cash flow”. “Until now this has been used to pay down debt,” he says. “At the average cost of £100,000 it would take 600 successful litigants each year before you would start to get worried.”

News Corporation has been hit by often extremely serious and very high profile claims – Charlotte Church received £600,000, Jude Law £130,000 – and the eight month phone-hacking case which has been called arguably the most expensive in UK history.

Hutchings notes: “They are dealing with it very differently to News Corp. They are cutting it off as early as they can. Claims being made are already settling, so clearly [Trinity] Mirror is treating this with the utmost seriousness. It is a careful strategy to see these off as quick as possible, a very strategic, commercial view of it.”

DeGroote says that mounting compensation costs could potentially impact on the plan to pay a dividend next year, the first since 2008, but he feels that at this stage that is unlikely. The company’s pension plan, which during the downturn was a huge financial burden, has a deficit of £200m, but is expected to go into surplus next year.

In the past few years Trinity Mirror has got its parlous finances into shape, meaning that its “gearing” – the ratio of net debt to earnings, a key indicator for lenders – is just 0.7 times. Any figure under two times is considered very healthy.

Trinity Mirror admits the £9m provision is only enough to cover the number of cases it knows about. “We have set aside a figure in the high single-digit millions to cover costs in relation to civil claims. This covers all the cases, including claims that have been made, that we are aware of,” it said in a statement on Friday.

DeGroote nevertheless believes that, despite the ultimate financial cost being an unknown, the company will weather it. “There has been some irritation [among shareholders] over the way the issue has been handled in the past,” he says. “The admission of liability is in some ways a positive in terms of clarity. I don’t think this will end Trinity.”