Purplebricks Group vs 6% yielder BT Group: which do I feel is the better investment destination today?

Is BT Group plc (LON: BT-A) or Purplebricks Group plc (LON: PURP) the better buy right now? Royston Wild runs the rule over both shares.

| 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.

To kick things off, I’m putting my hand in the air and declaring that I’m not in love with either BT Group (LSE: BT-A) or Purplebricks Group (LSE: PURP).

My bearish stance on these stocks stretches back a number of years, and the choppiness of BT’s share price over the past year, as well as the steady share price slide over at Purplebricks, suggests that the broader market isn’t exactly bowled over by their investment potential either.

That said, both businesses rose on the release of fresh trading details earlier this week. Does this mean that things are seriously looking up? And if so, which do I think is the better share to buy today?

A sweet release

Purplebricks put out a quite decent set of quarterly results in which it said revenues boomed 20% in the six months to October, a jump the AIM business put down to “double-digit growth in instructions along with a continuation of increasing average revenue per instruction from improved attachment rates of traditional and new ancillary products.”

It said that while the market backdrop in the UK remained “challenging”, it continued to win market share during May-October and that its share of the online hybrid sector reached 74% last month.

As a consequence, the business reiterated its full-year sales guidance of £165m to £185m.

It’s hard to pick faults in the update and I won’t. However, the company still isn’t a ‘buy’ in my book. It’s not expected to start generating earnings until after the current year, i.e. the 12 months to April 2020. And City forecasts make it eye-poppingly expensive at current prices, with a forward P/E ratio of 97.2 times for next year.

Such a reading in my book does not adequately factor in the worsening state of the UK marketplace, nor the possibility that its international expansion programme may well fall flat.

Jump in or stay away?

So is BT a better stock to buy, in that case? Well, its half-year update of recent days showed that, helped by the impact of higher smartphone volumes and restructuring-related cost savings, pre-tax profit shot 24% higher from April to September to £1.34m. The strong result encouraged BT to advise that EBITDA for the full year to March 2019 would likely reach the higher end of its £7.3bn to £7.4bn guided range.

But now the bad news. Revenues at the FTSE 100 titan dropped 2% in the six months to £11.59bn, reflecting further troubles for its enterprise operations as well as the impact of regulated price reductions at its Openreach infrastructure division.

What’s more, BT decided to reduce the interim dividend by 5% to 4.62p per share, a decision that doesn’t exactly shock me given the shaky conditions in its key markets and its gigantic net debt pile which, incidentally, jumped to £11.9bn as of September from £9.52bn a year earlier.

City analysts are expecting the telecoms giant to at least have the strength to keep the dividend locked at 15.4p per share this year. I’m not convinced, however, and therefore give little regard to a giant 6.1% yield.

It’s cheap, sure. But BT’s forward P/E reading of 9.7 times is a reflection of its travails in worsening market conditions. But is it a better buy than Purplebricks right now? For me it’s irrelevant — I wouldn’t touch either of them with a bargepole.

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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »