TalkTalk Telecom Group PLC

The stable outlook reflects our expectation that TalkTalk will stabilize its revenue base over the next 12 months, continue to expand its customer base, and significantly lower its exceptional costs, in line with our base case. We forecast a debt-to-EBITDA ratio of 3.3x-3.5x and FFO to debt of 20%-25% in 2020. We could lower the rating if TalkTalk experiences revenue and margin declines, for example due to increased competitive pressures, resulting in adjusted debt to EBITDA remaining at or above 4x and FOCF to debt reducing to 5% or lower on a sustainable basis. We see limited rating upside over the next 12 months because high capital expenditure (capex) and reorganizing the business will likely constrain FOCF generation and organic

...The company's customer base has grown robustly, underpinned by its Fixed Low Price Plan (FLPP). TalkTalk had 192,000 net new subscribers ("net adds") in fiscal 2018 and 104,000 during the first half of 2019. The growth in broadband customers is underpinned by FLPP, which guarantees fixed prices to its customers over the 18-month term of a contract. We believe that TalkTalk's FLLP contracts currently benefit from a price advantage versus most of similar-speed broadband contracts currently offered by other large Internet Service Providers (ISPs) in the U.K. We therefore expect continued subscriber growth of more than 100,000 in fiscal 2020, partly supported by low churn as customers tend to renew contracts given relatively modest price increases (2%-3%). Credit metrics should improve significantly in 2019 and 2020 on reduced exceptional items, lower fiber wholesale fees, and TalkTalk's commitment to reduce leverage. After a year of reorganization in 2018--with total exceptional items of ú97...

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