Today I am explaining why I consider BT Group (LSE: BT-A) (NYSE: BT.US) to be a solid contender for those seeking dependable earnings expansion.
A dependable growth selection
Make no mistake: BT Group is a terrific stock pick for those seeking reliable year-on-year earnings growth. The business has seen earnings explode at a compound annual growth rate of 13% during the past five years alone, and forecasters expect the telecoms giant to punch further advances in the coming years.
Admittedly the effect of intensifying competition from fellow triple-services providers British Sky Broadcasting and TalkTalk is anticipated to see growth slow in the medium term, with a 4% rise for the year concluding March 2015 expected to be followed with a meatier 8% increase in the following 12-month period.
These less-electrifying projections still leave BT dealing on P/E multiples of 13.2 and 12.3 for 2015 and 2016 correspondingly, however, well within the benchmark of 15 or below which represents decent value for money. These figures also usurp a forward average of 17.1 for the FTSE 100
Gearing up for the fight
And I believe that BT’s intensive investment plans leave the business in a great position to return to sky-high growth beyond next year.
Firstly, the firm’s multi-year fibre-laying programme now connects 20 million residential and commercial premises — adding up to 70,000 new premises per week — and BT now has three million places wired up to its broadband packages.
The company’s move to offer its BT Sport package free to all broadband customers, combined with the brokering of shrewd deals with third-party carriers like Virgin Media, has proved a masterstroke boosting revenues across its Consumer division. Indeed, this helped drive turnover at this unit 10% higher during April-June to £1.05bn.
Indeed, BT remains the go-to place destination for new broadband customers, and the company added 104,000 new customers during the three-month period. By comparison Sky and TalkTalk saw their customer bases rise just 50,000 and 10,000 respectively.
And BT is also hiking its investment in its BT Sport portfolio to underpin this momentum, and this week secured exclusive rights to show four live games per week from Portugal’s Primeira Liga football league. The firm already has rights to show live matches across six major European leagues, including England’s FA Premier League, and from next season has exclusive rights to show UEFA Champions League and Europe League football for three years.
Although such heavy investment is likely to weigh on earnings growth in the near-term, I believe that the firm’s multi-channel capex drive should drive earnings through the roof in future years.