Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.
Today I’m looking at BT Group (LSE: BT-A) (NYSE: BT.US) to ascertain if it can make £3bn in profit.
Have we been here before?
A great place to start assessing whether or not BT can make £3bn in profit is to look at the company’s historic performance. Unfortunately, it would appear that BT has not been able to make a profit of £3bn at any point during the past 10 years. Indeed, the closest BT came to this profit target was during 2007, when the company reported a profit of £2.9bn for the year.
However, since 2007 BT has struggled to drive profits higher as a number of factors have weighed on the company. Specifically, BT’s growth has been held back by rising interest costs and falling revenue from the company’s legacy, fixed-line telecoms business.
Nevertheless, BT reported a net profit of £2.1bn for 2013, which indicates that the company will have to drive profits higher by around 30% from current levels to reach my target. Luckily, it would appear that BT is well placed to do this.
But what about the future?
BT’s growth during the past few years has been nothing short of impressive but the question is, can BT maintain its growth rate to hit my profit target?
Well, it would appear that BT is certainly not prepared to rest after the performance of the last few years. For example, BT has recently won the exclusive rights to broadcast UEFA Champions League and UEFA Europa League football. Further, the company’s rollout of fibre broadband surged during the last quarter, up 70%, taking the total number of properties connected to 17 million.
Additionally, BT has renewed its overseas expansion drive. In particular, BT already has operations in 170 countries around the globe and the firm’s Global Services division delivered about 31% of overall revenue last year. BT’s management has stated that it wants the company to become a global leader in the field of telecommunications, which implies further international growth initiatives could be on the cards.
With these plans for growth, both at home and overseas, City analysts are positive about BT’s outlook. Current City forecasts predict that BT will report a pre-tax profit of £2.5bn for 2014, £2.9bn for 2015 and finally a pre-tax profit of £3.1bn for 2016.
Foolish summary
So overall, I feel that BT can make £3bn in profit.