Should You Buy BT Group plc After Mixed Update?

Is now the right time to buy BT Group plc (LON: BT.A), or is its update a reason to avoid?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today’s third quarter results from BT (LSE: BT-A) (NYSE: BT.US) have been overshadowed somewhat by the announcement of the company’s pension plan arrangements. In fact, the triennial review of its pension scheme means that BT will pay down its increasing pension deficit by contributing £2 billion to the scheme over the next three years. This, it is hoped, will reduce the deficit from the now £7 billion, with it having risen from £3.9 billion in 2012 largely as a function of lower interest rates and quantitative easing.

While £2 billion over three years is a vast amount, it is less than the £2.6 billion that the company has spent trying to reduce its deficit in the last three years. And, while a significant amount, it is generally in-line with market expectations and, as a result, shares in BT are trading in line with the wider market, being down 1% today.

Third Quarter Results

The agreement regarding pension plan arrangements means that BT will now focus on investing in its fibre broadband network, where it anticipates being able to deliver speeds of up to 500 Mb across most of the UK within the next decade. This seems to be a sensible strategy, since the third quarter of the current year was BT’s best ever for fibre broadband new additions. This helped to push BT’s earnings up by an impressive 10% versus the same quarter of last year and, in the nine months to 31 December, the company’s free cash flow is £459m higher than in the corresponding period last year.

However, BT has also reported a decline in revenue for the quarter of 3%, which means that its top line is down 2% for the first nine months of the year. This lack of revenue growth may cause concern for many investors, since the company’s cost base is likely to rise moving forward, as it invests in its fibre network and also in sports rights for its pay-tv offering. As such, a falling top line could cause the company’s profitability to be squeezed over the medium to long term.

Looking Ahead

Despite this, BT continues to have a bright future. Certainly, its pension liability is an unwelcome challenge, but this seems to be priced in to its current share price, with BT trading on a price to earnings (P/E) ratio of 14.5 while the FTSE 100 has a P/E ratio of 15.9. And, looking ahead, BT is forecast to increase its bottom line by 5% next year and by a further 8% in the following year. Therefore, it seems to offer good value for money and, with market sentiment likely to improve now that its triennial pension valuation has been completed, it could be a good time to buy a slice of BT.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »