ii view: how BT saved broadband provider TalkTalk

Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images.

Acquisition of TalkTalk and PlatformX

Chief executive Allison Kirkby said:

“This is a genuinely unprecedented situation, where millions of citizens and businesses were at risk if TalkTalk had collapsed. BT is the digital backbone of the country, with a presence in every postcode.

“We have been connecting the nation for generations, stepping up in the moments that matter, and BT acquiring TalkTalk is now the only viable option to keep millions of customers connected and supported.”

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ii round-up:

BT Group (LSE:BT.A) today reaffirmed outlook forecasts as it announced the acquisition of rival UK broadband provider TalkTalk for an estimated cash impact of £400 million over the financial year to late March 2027.

Retail provider TalkTalk and business provider PlatformX are being bought out of administration primarily to prevent a loss of service to their combined 2.5 million customer base. BT continues to forecast normalised free cashflows of £2 billion for the current 2027 financial year, increasing to £3 billion by the end of the decade, excluding the effects of this transaction.

Shares in the FTSE 100 company rose 2% having come into this latest news up around 6% so far in 2026. That’s similar to the FTSE 100 index itself over that time. Rival Vodafone Group (LSE:VOD) is up by just over quarter year-to-date.  

TalkTalk had suffered under a heavy debt burden since being acquired in 2021 by Toscafund Asset Management and private equity firm Penta Capital.

BT, which has acquired TalkTalk and PlatformX on a debt-free basis, says a regulatory review of the transaction will take place over the coming weeks.

TalkTalk generated revenues of £1.2 billion over the last year and was loss making. BT plans to first stabilise the business, eventually making it value accretive via integration and cost saving synergies.

The £400 million cost includes an expected £60 million loss for TalkTalk this financial year as well as the loss of £100 million usually paid to BT’s own Openreach division, given TalkTalk relationship as a customer of BT and its use of BT’s lines to homes and businesses.  

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the news, flagging a target price of 255p per share.    

First-half results are due on 5 November.

ii view:

BT operates across three divisions: the Consumer division highlights itself as the UK’s largest provider of consumer mobile and fixed broadband communications services, serving customers via its brand BT, EE and plusnet.  

Openreach manages the group’s fixed networks including mobile phone masts and physically connecting homes and businesses, with the Business division serving more than one million companies and public sector organisations.

For investors, intense competition from rivals including O2 owner Telefonica SA (XMAD:TEF) and Sky owner Comcast Corp Class A (NASDAQ:CMCSA), remains. Regulatory risks have arguably increased, with recent comments made by new Prime Minister Andy Burnham about sectors like water and energy pointing to less friendly government relations. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while group net debt of £19.97 billion as of late March compares to a stock market value of around £19.7 billion.    

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On the upside, the acquisition of TalkTalk prevents the business going to a rival, with the deal eventually expected to prove value accretive. The group’s ongoing transformation includes a deal earlier this year to partner its international business with that of Verizon’s, enabling management to increase its focus on the core UK business. An expected fall in capital expenditure over the medium term given a largely built fibre broadband network, will boost group cashflows, increasing financial flexibility and potentially enabling debt reduction or increased dividend, or even both. The increased use of AI is also expected to reduce customer service costs.    

In all, and while investment expenditure continues, the approaching conclusion of significant expenditure and a forecast dividend yield of just over 4% will likely see investors remain supportive.  

Lee Wild, ii's head of editorial, owns BT Group shares. 

Positives

• Expanding fibre broadband and 5G network
• Attractive dividend yield (Not guaranteed)

Negatives

• Intense industry competition
• Subject to regulatory rulings

The average rating of stock market analysts:

Hold