Is Talktalk Telecom Group PLC A Better Telecoms Pick Than Sky PLC And BT Group plc?

Multi-services telecoms play Talktalk (LSE: TALK) continues to beaver away behind the scenes as the titanic battle between industry heavyweights BT Group (LSE: BT-A) and Sky (LSE: SKY) continues to dominate the news headlines.

With bidding for the next round of FA Premier League broadcasting rights around the corner, all talk is of whether BT can deliver another hammerblow to the sporting dominance of Sky. With the company also reportedly on the cusp of re-entering the mobile space by acquiring O2 or EE, BT’s willingness to splash the cash seems no sign of slowing.

Talking the talk

This aggressive growth strategy is undoubtedly exciting, but I believe that Talktalk could be considered an exceptional alternative to the country’s established telecoms giants. Boosted by a rising emphasis on so-called ‘quad-play’ bundling, Talktalk saw organic broadband, mobile and fibre net additions rise to their highest for four years during July-September.

The company is rolling out a number of initiatives to further attract customers reluctant to tie themselves into multi-year contracts with its bigger cousins, including the launch of its first bundle covering all four television, broadband, telephone and mobile spaces, as well as its Talk2Go app which allows customers to use landline minutes on their smartphones.

And last month the company took a huge step in bolstering its rapidly-expanding mobile business still further by inking a deal with Telefónica UK, giving it access to the latter’s 2G, 3G and 4G services.

City analysts expect Talktalk to bounce back from two years of heavy, double-digit earnings declines from this year onwards, and a terrific 84% rise is currently pencilled in for the 12 months ending March 2015. A further 54% advance is pencilled in for fiscal 2016.

Meanwhile, the effect of heavy capital expenditure is expected to weigh heavily on earnings growth at its main competitors during this period — BT is anticipated to punch growth of just 4% and 6% in 2015 and 2016 respectively, while Sky is actually predicted to see earnings drop 2% in the year closing June 2015.

Terrific telecoms exposure at tasty prices

And on paper Talktalk certainly tallies up favourably compared to its big-cap rivals in the value stakes. Although the business trades on a P/E rating of 23.9 times prospective earnings for this year — some way above corresponding readouts of 14 times and 16.7 times for BT and Sky correspondingly — expectations of further stratospheric growth in 2016 sends Talktalk shuttling to 15.8 times.

And the company’s terrific value is underlined by a price to earnings to growth (PEG) readout of 0.3 through to the close of 2016 — any reading below 1 is generally regarded as too good to sniff at.

On top of this, Talktalk can also be considered a far more attractive pick for income investors. Although each of the big three are expected to lift the dividend in the near-term, Talktalk’s dividends this year and next carry chunky yields of 4.4% and 5.2% for 2015 and 2016 respectively.

By comparison BT sports a yield of just 3% for 2015, below the FTSE 100 forward average of 3.3% and which moves to just 3.4% for the following year. And Sky boasts a yield of 3.5% for the current fiscal year.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.