Fortune favours the brave. This applies particularly in business. The commercial landscape in the UK is constantly changing. Just a year ago oil and mining companies were seen as safe investments. A few years ago the supermarkets were no-brainer buys. And a decade ago the banks were the safest of shares.
Whether you like it or not, change happens. All that you had assumed about a company or an industry can, in a few short moments, be turned on its head. That’s why companies have to anticipate what will happen in the future, rather than depending on what worked in the past.
Once a staid and unexciting utility
Ten years ago, BT (LSE: BT-A) (NYSE: BT.US) was seen as a staid and unexciting utility. Its main business was fixed-line telephony, yet this was an area that seemed a relic of the past. Mobile phones were increasingly popular, and other companies were taking part of BT’s core telephony business. The only thing investors used to talk about when this firm was mentioned was its pension deficit. Surely this was a company in decline?
Since then, BT has been a copybook example of how an intelligent strategy can turn a company’s fortunes around.
While people were making fewer telephone calls, broadband usage was growing rapidly. So the telecoms giant harnessed its phone network to pipe the internet to homes around the country. It is now the country’s leading broadband supplier.
Last year it entered the pay-tv market, taking on Sky by buying up Premiership TV rights and launching its BT Sport TV channels. No other company in the UK has dared make such a bold move. But I sense that BT has the financial strength and the strategic nous to pull it off.
Now at the centre of technology and telecoms in the UK
And now BT is in talks to buy Everything Everywhere, the joint venture created by France Télécom and Deutsche Telekom. If it can pass the regulatory hurdles, BT would have a dominant position in the broadband market, it would be the leading phone company, and the largest mobile network, plus it would be the fastest growing TV company in Britain.
That would be a formidable commercial prospect. The firm will have been transformed from a moribund utility to a company at the centre of technology and telecoms in this country.
Yet check the fundamentals and BT is still reasonably priced: the 2014 P/E ratio is 15.9, falling to 14.0 in 2015. It appeals as a dividend investment, with a yield of 2.4%, rising to 2.9%. Any negatives? Well, the one thing we should keep an eye on is the net debt; I’ll be interested to see how the EE deal is funded.
Nonetheless, by making all the right strategic moves, BT has made itself hard to ignore. It is a buy for me, and a business I am seriously considering adding to my portfolio.