Is Talktalk Telecom Group plc a better buy than BT Group plc and Sky plc after today’s results?

Today’s full-year results release from Talktalk (LSE: TALK) shows that the last year has been incredibly tough for the telecoms and media company. As a result of the hacking incident in October, Talktalk’s financial performance has deteriorated versus the prior year. For example, its pre-tax profit has fallen from £32m in 2015 to £14m in financial year 2016, with £83m of exceptional items versus £46m of exceptional items in the previous year.

Bright prospects

Clearly, this is a disappointing set of results for Talktalk’s investors. However, it’s not all doom and gloom, since Talktalk is doing a great job of turning its performance around. In fact, in the fourth quarter of the year it experienced its lowest ever churn rate of 1.3% and is on track to meet current year guidance. Certainly, there’s a long way to go until Talktalk fully recovers from the hacking incident. But it appears to be well on the way to doing so, with its value proposition likely to be popular in an increasingly crowded quad-play space.

Of course, BT (LSE: BT-A) and Sky (LSE: SKY) are also moving into the quad play space, with BT already offering landline, pay-TV, broadband and mobile services. Sky is expected to complete its four-way offering when it moves into mobile in the near future and while both companies have considerable appeal due to the scope for cross-selling within the quad-play space, Talktalk appears to offer the more compelling investment case.

That’s because Talktalk has significant turnaround potential. Its past performance has been disappointing, but with the hacking incident now seemingly a distant memory for consumers, its forecasts could be subject to upgrades if the company can continue to perform as well as it has done in the most recent quarter of the year.

Near term to disappoint

While BT and Sky both have upbeat long-term prospects, their near-term performances are set to be somewhat disappointing. In the case of BT, it major reorganisation following the acquisition of EE brings with it a degree of risk, while its forecast fall in earnings of 6% in the current year could cause investor sentiment to come under pressure in the short run. And with BT having a heavily-indebted balance sheet as well as a major pension liability, its risks could be higher than many investors currently realise.

Meanwhile, Sky is forecast to record a fall in its net profit of 6% in the next financial year. Like BT, it’s a high quality company. But with the launch of Sky Mobile apparently imminent, it’s a rapidly changing business that appears to have an above-average level of risk. As such and while Talktalk has an uncertain future, its recovery prospects are bright and it could continue to outperform its two sector peers as it has done since the turn of the year.

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Peter Stephens owns shares of TalkTalk Telecom Group plc. 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.