Is It Still Safe To Buy BT Group plc?

I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating. 

So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy. 

Today I’m looking at BT (LSE: BT.A) (NYSE: BT.US) to determine whether the shares are still safe to buy at 310p.

So, how’s business going? 

The market has been pleased with BT’s performance so far this year, as the company continues to grow its presence in the country’s broadband and pay-tv markets.

In addition, investors have been pleased with the company’s strong free cash flow, which management has predicted will average about £2.6 billion a year for the next two years.

Furthermore, thanks to this free cash flow, BT has been able to invest for future growth without having to borrow any additional funds. In fact, net debt has reduced by 11% during the past year.

Indeed, the company recently announced that it was going to spend £1 billion during the next three years in an attempt to take on BSkyB in the lucrative pay-tv market. 

Elsewhere, BT’s international operations continue to grow rapidly, with earnings expanding 15% during the last quarter alone.

However, the group’s pension deficit, which has also grown rapidly, is still putting a drag on the group’s finances. 

Expected growth

As BT continues to invest for growth, many City analysts expect the company’s earnings to grind steadily higher during the next two years. City forecasts currently predict earnings of 25.9p per share for this year (2% growth) and 28.1p for 2015. 

Shareholder returns

Thanks to BT’s highly profitable operations, the company is able to return plenty of cash to shareholders. 

The company has just declared a two-year £300 million share buyback programme and management has committed to a progressive dividend policy, aiming to increase the payout between 10% and 15% a year for the next two years.

In addition, BT’s dividend yield is currently 3.1% — larger than that of its peers in the fixed-line telecommunications sector, which currently offer an average dividend yield of 2.9%. 

Valuation

Surprisingly, despite being one of the most recognisable brands in the UK, BT still trades at a discount to its peers. BT currently trades at a historic P/E of 12, while its sector peers trade at an average historic P/E of around 13. 

Foolish summary

Based on BT’s strong cash generation, management’s positive outlook and current discount to sector peers, all in all, I believe that BT still looks safe to buy at 310p.

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In the meantime, please stay tuned for my next FTSE 100 verdict 

> Rupert does not own any share mentioned in this article.