In this article I am looking at whether BT Group (LSE: BT-A) (NYSE: BT.US) is an appealing stock for savvy value hunters.
Price-to-Earnings (P/E) Ratio
BT has a flawless record of printing earnings expansion over each of the past five years, the telecoms giant having clocked up growth at a compound annual growth rate of 13% since 2010. And analysts expect the firm’s impressive momentum to continue over the next couple of years, with growth of 4% for the year concluding March 2015 expected to accelerate to 9% in 2016.
Based on these forecasts, BT currently sports a P/E multiple of 13.6 for this year — meeting the benchmark for reasonable value which stands at 15 times or below — and which moves to 12.5 for 2016. These readings also make mincemeat of forward averages of 17.1 and 24.7 for the FTSE 100 and fixed-line telecoms sector respectively.
Price-to-Earnings-to-Growth (PEG) Ratio
Expectations of further sustained expansion is no doubt impressive, even though a PEG rating of 3.3 for this year falls outside bargain territory of 1 or below. Still, for 2016 this figure drops to just above the value acid test, at 1.5.
As BT’s total liabilities exceed total assets, the telecoms specialist carries a negative book value of around £592m. This reading creates a book value per share of -£0.08 which, in turn, spawns a market to book ratio of -50.23.
Still, skewed book ratings are nothing out of the ordinary for telecoms firms, where the true value of assets are ‘downplayed’ to a massive extent and consequently outstripped by liabilities. In this respect, I do not believe BT’s readout is a huge cause for concern.
In line with robust earnings growth, BT has kept the annual dividend rising at an inflation-smashing rate in recent years. And with further earnings growth mooted the telecoms giant is anticipated to continue doling out chunky payout increases — a dividend of 12.6p per share is pencilled in for this year, up from 10.9p in 2014, and which is predicted to rise to 14.3p in 2016.
This year’s projected increase creates a yield of 3.2%, bang in line with the forward average of the FTSE 100, while next year’s advance propels the readout to 3.6%.
Dial In For Impressive Investor Value
In my opinion BT Group offers solid, if unspectacular, value for money on a medium-term basis. I believe that the firm is decently priced for those seeking access to reliable earnings growth, a phenomenon that should underpin exciting growth in the full-year payout. And with heavy investment in the firm’s broadband and television services helping to propel revenues higher, I believe the stage is set for earnings and dividend growth to explode in coming years.
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Royston does not own shares in BT Group.