Shares in BT Group (LSE: BT-A) (NYSE: BT.US) have stormed ahead since 2010. From a low of 110p that year, they’re now trading at 412p for close to a four-bagger, after the telecoms giant followed 2009 with four years of steady earnings growth.
That was topped with a 12% EPS rise in 2013, putting the shares on a modest P/E of 10.5 at year-end — and the dividend yielded a respectable 3.4% too.
Prospects
Here’s what 2013 looked like, together with forecasts for the next three years:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2013 | 26.6p | +12% | 10.5 | 9.5p | +14% | 3.4% | 2.8x |
| 2014 | 26.3p | -1% | 15.8 | 10.8p | +14% | 2.7% | 2.4x |
| 2015 | 28.8p | +10% | 14.4 | 12.4p | +15% | 3.1% | 2.3x |
| 2016 | 31.4p | +9% | 13.2 | 14.5p | +17% | 3.6% | 2.2x |
So, no earnings growth expected for this year, but around 10% per year for the following two years is pretty nice. And those dividends might not be offering great yields, but BT does need to reinvest lots of cash for technological developments — and that will be crucial during the struggle for bandwidth supremacy in the coming years.
BT is actually looking a much better prospect than it was a few years ago, and at the halfway stage the company reported a 2% rise in adjusted first-quarter pre-tax profit with adjusted earnings per share (EPS) up 2% too — for the half, profit and EPS were both up 3%.
Fibre for the future
But it’s all about investing for the future right now, and new chief executive Gavin Patterson told us that “This has been our strongest ever quarter for fibre take-up with Openreach net connections up 70%“, and fibre now passes more than 17 million premises.
And by Q3 time, things were looking a little better again — adjusted pre-tax profit for the nine months had moved to a 5% advance, with adjusted EPS up 6%. Potential fibre customers had passed the 18 million mark, and Mr Patterson stressed the importance of BT’s winning the exclusive rights to UEFA Champions League and UEFA Europa League football.
For the full year, BT said it expects EBITDA to be at the top end of the £6-6.1bn range.
A period of growth?
Overall, depending on how BT shapes up in the technology battle in the coming years, we could be on for a nice period of long-term earnings growth.
Will the share price go with it? Well, even after that very strong growth over the past few years, those forward P/E valuations still aren’t too stretching — they’re lower than the FTSE average, although dividend yields are a little lower than average too.
