Should I Buy BT Group plc?

BT Group (LSE: BT-A) (NYSE: BT.US) enjoyed a blistering 2013. The share price rose 60% across the year as BT mounted an impressive challenge to British Sky Broadcasting on its Premier League home turf. This success is no flash in the plan, as BT’s share price is up 170% over five years. So, should I buy it today?

BT deserves plaudits for winning where Setanta and ESPN failed. After its Premier League success, Europe was the next logical step, and BT duly blew BSkyB away with a £900 million bid for three years of live television rights.

Its audacious swoop took BSkyB by surprise. Who knew BT was a flair player? Two million customers have now signed up to BT Sport, and its contract with Virgin Media has doubled that to four million. It has also driven profits in other sectors of the company, notably BT Retail Consumer. 

It’s good to talk Sport

There’s a lot more to BT than Sport. Its fibre network now covers a mighty 17 million premises. It has secured a near-monopoly position on rural broadband, helped by a £1.2 billion government subsidy, which proved controversial when BT suddenly found money to throw at football. BT’s Retail Business division has seen good growth in IT services, while BT Global Services and BT Wholesale both have strong order books. This adds defensive strength to its newfound attacking prowess.

Winners and losers

BT operates in a heavily regulated market, with tough competition from the likes of TalkTalk and BSkyB. If BSkyB fights back by slashing its broadband charges, everybody could suffer in the subsequent price war. BT’s staff pension scheme remains a constant drag. The recent share price success has driven down its dividend yield to just 2.5%, against an average of 3.47% for the FTSE 100 as a whole. Covered 2.8 times, there is scope for further growth, however, and management recently hiked the half-year dividend by 13% to 3.4p, which shows willing. 

BT now trades at 14.3 times earnings, a fraction over the FTSE 100 average. But there could be more growth to come, with earnings per share forecast to rise 13% in the 12 months to March 2015. Barclays Capital is ‘overweight’ on BT, with a target price of 410p. Today, you pay 380p.

Right now, you’re buying a winner, although I’m worried that the hefty investment in sport will knock earnings. It is also tough at the top, and BT is now playing for high stakes. The sky really could be the limit for the next round of football rights bidding. Buyers must understand the risks. Sport throws up just as many losers as winners.

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Harvey doesn't own shares in any company mentioned in this article. The Motley Fool has recommended British Sky Broadcasting.