BT (LSE: BT-A) (NYSE: BT.US) is a company that has been in the headlines quite a lot in recent months.
The main reason for this has been a full-scale attack on Sky, with BT firstly winning the rights to 38 live Premier League football matches and now winning exclusive rights to Champions League football.
Previously, Sky had dominated this space and this had set its offering apart from rivals, with the company owning lucrative content, the cost of which could be passed on to customers in a fairly straightforward manner.
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However, BT is now flexing its muscles in the highly lucrative sports content market, with investors seemingly impressed with such moves. Indeed, shares have gained 18% in the last three months versus just 4% for the FTSE 100 index.
Furthermore, BT still looks reasonable value in spite of this brisk upward movement in market valuation. For instance, its price-to-sales ratio is 1.6 — this is bang in-line with the wider fixed line telecommunications sector and means that BT does not currently trade at a premium to its sector.
This seems rather unjust, since BT is clearly on the front foot with regards to its strategy, and looks set to continue to wage war with Sky. Although this inevitably means upfront costs, it also could result in a larger subscriber base and the opportunity to increase revenues still further.
Increased revenues and a maintained price-to-sales ratio of 1.6 would mean BT’s shares making gains from their current level. However, it could also be argued that shares deserve to trade at a premium to the rest of the sector, since BT seems to be better placed than peers such as Cable & Wireless Communications to grow revenue, since Premier League and Champions League football (plus any further content wins) could prove too much for many subscribers to turn down.
Therefore, a premium to the sector price-to-sales ratio could be justified, as well as potentially higher future revenue. A ratio of 1.8 times sales that are 10% higher than current levels would mean shares trade at 456p. This would still not be the highest price to sales ratio in the sector, but would, nevertheless, give investors a 20% gain from the current share price of 380p.
