Why I’m avoiding BT Group plc like the plague

Royston Wild explains why he is giving BT Group plc (LON: BT-A) a wide berth today.

| 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.

sdf

2017 has proved to be a year to forget for BT Group (LSE: BT-A). The telecoms giant has seen its share price slide by 25% amid a litany of problems. An accounting scandal in February first spooked investors, and since then fresh fears over the scale of the company’s pensions black hole, concerns over the future cost of Premier League broadcasting rights, and tougher trading conditions have soured investor appetite.

Just last month it advised that underlying revenues fell 1.5% during April-September as demand for its services continued to slip. Consequently adjusted EBITDA at the business slipped 4% to £1.8bn.

So reflecting these troubles, City analysts are expecting the FTSE 100 firm to print a 5% earnings decline in the year to March 2018.

A 1% uptick is predicted for next year, but I reckon the road back to growth is littered with obstacles and that this insipid projection could itself be cut down in the months ahead. As such I reckon investors should pay little attention to BT’s low forward P/E rating of 9.9 times and sit on the sidelines.

Dividends in danger?

What’s more, I believe hopes of meaty dividends could also go up in smoke thanks to BT’s patchy profits outlook and pressured finances.

Current estimates put the fiscal 2018 dividend at 15.5p per share, resulting in a monster 5.7% yield. And the yield moves to 5.9% for the following period thanks to an expected 16.2p payout. However, I think these predictions could be looking a little heavy.

Reports put BT’s pensions black hole as high as a colossal £14bn, a nettle that it will have to grasp sooner rather than later. With the telecoms titan also facing sizeable capital expenditure in the years to come, adding extra stress to its £9.5bn net debt mountain, I think the chunky dividends of yesteryear may be a thing of the past.

Read all about it

If given a choice between Bloomsbury Publishing (LSE: BMY) and BT, I would be much happier to plough my hard-earned cash into the books behemoth given its bright dividend outlook.

Even though earnings are expected to dip 1% in the year to February 2018, the Harry Potter publisher is still expected to lift the dividend to 7p per share from 6.7p last year. As a result, investors can bask in a very healthy 3.7% yield.

And supported by a predicted 5% profits uptick in fiscal 2019, Bloomsbury is anticipated to hike the dividend to 7.4p, nudging the yield to 3.9%.

While BT’s payout predictions look a little fragile, the same cannot be said for those of Bloomsbury. Expected dividends are covered 1.8 times by earnings, a chunky readout even if it does fall below the widely-accepted security benchmark of two times. Meanwhile, the firm’s excellent cash generation (net cash surged 85% during March-August, to £16.9m) gives its progressive dividend policy added support.

Bloomsbury currently trades on a forward P/E ratio of 15.1 times, which I consider exceptional value given the company’s brilliant sales momentum. Revenues climbed 15% during the first half, underpinned by a 33% sales jump across its children’s titles.

And with the company doubling-down on digital investment, as well as taking steps to supercharge its underperforming adult unit, I reckon investors can look forward to delicious earnings and dividend growth in the years ahead.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Growth Shares

This FTSE 250 stock has beaten the index by around 10x over the last year

Jon Smith rates a FTSE 250 stock that has smashed the broader index performance and could keep going based on…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »