JP Morgan has retained its 'overweight' rating on BT Group after the telecoms operator's planned £400 million acquisition of TalkTalk.
The bank said the deal could mark the start of wider UK sector consolidation.
Analyst Akhil Dattani said it supports the bank's view that several highly leveraged operators have unsustainable capital structures.
The all-in cost includes about £100 million TalkTalk owes to Openreach, BT's infrastructure arm, and roughly £60 million of expected trading losses to the end of the year.
JPM puts the price at about twice synergised operating free cash flow, but flagged significant execution risks.
BT stepped in as buyer of last resort after TalkTalk failed to find a buyer and entered administration.
The Department for Culture, Media and Sport had issued a Public Interest Intervention Notice over the consequences of its failure.
JP Morgan sees little regulatory risk, as TalkTalk has about 5% of the UK retail broadband market and BT would have 36%, in line with the European incumbent average.
BT's guidance for excess free cash flow in the year to March 2027 remains intact, the bank said, as any TalkTalk shortfall is already in the transaction cost.
Accounting will be complex, but initial modelling suggests the deal should add a high single-digit percentage to normalised free cash flow over the medium term.
Openreach could also gain, as TalkTalk has been a major source of line losses and BT is expected to stabilise the customer base.
The deal also removes the risk of an infrastructure-focused buyer acquiring TalkTalk and moving its customers off BT's network.
JP Morgan expects it to be the first of several UK telecoms deals, which could improve market conditions and help BT earn a fair return on its fibre investment.
