There’s going to be a lot of new tellies bought over the Christmas period and in the New Year sales, and people will be thinking about new TV packages soon after. We’ll see a lot of new fancy phones being bought too, and they’ll be making new demands on bandwidth.
With the lines between telecoms services and provision of content increasingly blurring, who’s going to win the most eyeballs in 2015 and which will be the best investment?
I think BT Group (LSE: BT-A) (NYSE: BT.US) has the edge, and I’ll tell you why.
Full service
It’s largely down to bandwidth, and BT’s fibre network has been expanding at a cracking pace — by the end of the first half in September, it already reached 21 million premises, and BT said it was seeing strong demand for higher-capacity connections.
That’s what makes BT’s TV channels possible, and it looks set for another year of successful uptake of its BT Sport offering, with average Premier League audiences already up 45% at the halfway stage.
BT shares have shot up 15% over the past month, to 412p, but they’re still on an undemanding P/E of 14 with a dividend yield of 3% on the cards, improving to 13.5 and 3.4% for 2015 — and there’s a very big Strong Buy consensus from analysts right now.
Weaker growth potential
Shares in SKY (LSE: SKY) are up nicely over the past month too, to 902p. But they’re on a higher P/E of more than 16, and June 2015 looks set to bring us the second year in a row with no growth in earnings per share (EPS). And though SKY has a much bigger TV audience, it’s under increasing margin pressure as it has to compete with more providers offering the same content.
Analysts are more bearish too, with an even split between Buy and Sell ratings. And while SKY is probably still a reasonable investment, I just don’t see the same medium-term upside as I do with BT.
And that brings me to Vodafone (LSE: VOD) (NASDAQ: VOD.US), whose valuation looks pretty stretched. At 225p the shares have also enjoyed a late surge this year, but they’re on P/E multiples of 36 and 34 for March 2015 and 2016 respectively.
Wilderness years?
Vodafone’s 4G network is surely going to bring in some decent earnings in due course, but it’s still early days yet — and with service revenues falling in developed markets, there’s a 60% drop in EPS predicted. Forecast dividends are high at around 5%, but they’d be little more than half covered by earnings. For the next few years, I really can’t see where Vodafone is going.
There’s clearly a massive recovery in EPS factored into the Vodafone share price today, or there’s a big takeover premium, or something — but at today’s price, I’m just not buying it.