Stock of the day 29/01/2015 – BT Group PLC

BT has been one of the strongest UK stocks in the past 5 years, and after a major acquisition in 2015, will be hoping for a strong Q3 2014 earnings release on Friday.

Whilst the company had an overall positive 2014, it was significantly flatter than BT’s performance in 2013, or even 2012. After opening the 2014 at £3.80, the company quickly hit its yearly high of £4.21 near the end of February. The stock then saw a brief fall to £3.38 in April, before stabilising between £3.80-3.90 for much of the year. However, rumours towards the end of November that BT was courting both EE and O2 for a possible takeover saw share prices rise, leading to a 2015 open of £4.03 before reaching £4.35 at the start of this week. The stock slipped slightly as the week went on, and is currently trading at £4.25.



Much of the positivity seen on the markets surrounding BT has stemmed from its attempts to position itself as a fully-fleshed out rival to Sky. The company is desperate to establish itself in the ‘quad play’ market, which would see it provide landline, broadband, pay-tv and mobile services. With the £12.5 billion acquisition of EE, BT completed the final piece of this jigsaw, and with BT Sport snagging Champions League football (and the potential for Gary Lineker to front the programming) alongside its current Premier League selection, BT is making an impressive play for Sky’s turf. The winning of Champions (and Europa) League UK TV from Sky and ITV is the first time one provider has held the complete rights to both tournaments, and is a major blow to its biggest rival.

In its newly acquired mobile sector, it looks like BT has entered the arena at just the right time. With EE itself shrinking the competition by merging Orange and T-Mobile, a proposed bid by the Hong Kong owners of Three for O2 would put UK mobile operations effectively in the hands of 3 companies, with O2-Three the largest and EE in second. The reduction of competition will push prices higher for consumers, and allows BT space to recoup its hefty investment into the mobile company.

Despite the impressive 5 years BT has had, with share princes leaping 190% since 2010 and an average 12% bottom line growth per annum, some analysts are worried about the amount of debt BT is taking on. The company’s last financial statement saw it with £10 billion in debt, and the expensive purchase of EE alongside the not-exactly-cheap process of battling Sky (and oddly enough the Discovery Channel) for Premier League rights is not going to ease this problem.

However, analysts are expecting a rise in earnings per share to £0.075, alongside a minor raise in sales from £4.441 billion up to £4.478 billion. More significant would be the growth of pre-tax profits from £563 million up to £707 million; with this is mind, there is a consensus rating of ‘buy’ (14 ‘buys’, 6’sells’, 6 ‘holds’) with an average price target of £4.48, a slight increase from its current price. BT’s 2015 will be defined by its expansion into the mobile service industry, and by how much it will attempt to grow the already successful EE; its earnings release tomorrow will give investors an idea of what base BT is working with.