Today I am outlining why BT Group (LSE: BT-A) (NYSE: BT.US) could be considered a terrific stock for growth hunters.
A proud record of earnings expansion
Telecoms leviathan BT has an enviable reputation for robust year-on-year earnings expansion dating back many years. Indeed, the firm boasts a compound annual growth rate of 12.1% dating back to fiscal 2010, and City analysts expect the business to maintain this uptrend.
BT is anticipated to punch growth of 4% and 7% for the years concluding March 2015 and 2016 respectively, to 29.3p and 31.4p per share. These readings leave the business dealing on a P/E multiple of 13.2 times prospective earnings for this year and 12.4 for 2016, comfortably below the benchmark of 15 which embodies decent value for money.
Obviously BT’s growth estimates for this year and next illustrate a slowdown from previous years, the symptom of the huge sums being shelled out to keep its BT Sport channels well stocked with the most popular sporting events and consequently keep revenues at its BT Consumer arm ticking higher.
Dial in for delicious growth prospects
Such investment — combined with the decision to award broadband customers with free access to its sport network — has proved a huge hit with customers, however. And BT revealed in July that turnover at its Consumer arm climbed 10% during the first quarter to just over £1bn.
This surge has helped by the company’s multi-year investment drive to boost its fibre network across the country. More than 20 million residences and businesses — more than two-thirds of the UK — are now attached to the grid, and BT is wiring up new premises at a blistering rate of 70,000 per week.
Allied with the company’s decision to offer free sport to its internet clients, BT is enjoying stunning demand for its highs-speed services. Indeed, the firm reported that retail fibre net additions clocked in at 226,000 during April-June, a 15% annual rise and taking its total customer base to more than 2.3 million.
On top of this, BT is also embarking on an extensive expense-slashing exercise to bolster the bottom line and deliver long-term gains, a programme that prompted underlying operating costs — excluding BT Sport and transit expenditure — to slip 2% during the last quarter.
Undoubtedly the vast capital commitment required to expand its fibre network, not to mention the sports coverage of its in-house channels, is likely to keep growth at BT constrained in the next couple of years. But in my opinion the company’s ambition is likely to result in stunning earnings expansion further out.