The Best Reason To Buy BT Group plc

BTIf you’d asked a group of investors back in 2009 to tell you the best reason to buy shares in BT Group (LSE: BT-A) (NYSE: BT.US), I don’t think you’d have had many good answers.

Back then, BT was still struggling under the millstone that was its pension fund — with asset values devastated by the crash, the company was having to shore up its deficit with huge piles of cash every year, and that really wasn’t helping its investment in technological development.

Climbing back up

But since then, assets have recovered, the pension deficit is history, and BT’s earnings per share (EPS) have been rising strongly. And the share price has gone with it, too — it’s just about trebled in the past five years to 387p, while the FTSE has managed only a 40% gain.

Part of that rise was due to a huge 60% surge in 2013 on the back of BT’s launch of its sports channels in direct competition with British Sky Broadcasting — BT customers could finally get Premier League and Champions League coverage without having to fork out for Sky subscriptions (and people who like football tell me that’s a good thing).

More growth to come

Even with the cost of winning those footie rights, BT is still forecast to keep on growing its EPS, albeit at a sightly lower rate than in recent years — we’re looking at 4% and 7% for the years to March 2015 and 2016 respectively, when we had 7% last year following on from double-digit growth in the prior three years.

That gives us a modest forward P/E of 13.2 this year, dropping to 12.3 next — it’s not screamingly cheap, but it’s not overpriced either.

Dividends are also rising again, although yields are modest, with 2.9% last year and a forecast of 3.3%.

All of these things combine to make BT look like a decent enough investment, even if it’s not the bargain of the century.

The killer

But the one thing that makes me see BT as more than it used to be and worth a closer look is its move towards being a content provider and away from just selling services — as rival Vodafone has found, relying on old fashioned service revenues is risky as they’re falling in the developed world. You can differentiate content and provide premium offerings, but services are pretty much all the same.

So, BT is growing its earnings and it’s paying a modest but not unattractive dividend while retaining enough of its profits to expand into further content provision.

Look back in 2019?

I think that could turn out to be a winning combination — it will be interesting to look back on BT again in another five years.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended shares in BSkyB. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.