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BT Group plc Looks Set For Further Growth In 2015

Those who bought BT Group (LSE: BT-A) (NYSE: BT.US) shares a decade ago have seen their investment more than treble in value, and there’s no sign of earnings growth stopping any time soon.

BT delivered a 7% rise in earnings per share (EPS) for the year ended March 2014, and that came after three years of double-digit growth. For the current year the City boys are expecting a more modest 4%, but heading forward to 2016 they’ve pencilled in another 7%.

Share price stationary

With the shares on 367p, having slowed this year to a FTSE 100-matching rise of less than 3%, those predictions put the shares on a forward P/E ratio of 12.6 for March 2015, dropping to under 12 for 2016. That’s below the FTSE long-term average, and with dividends of 3.6% and 4.1% expected for the next two years (the interim payment was hiked by 15% last month), it’s looking cheap.

But that’s only if these forecasts are realistic, so are they?

First-half revenue actually slipped by 2%, but BT claimed a 0.3% rise in underlying revenue. And with reduced costs and gains from higher-margin business, we saw a 13% rise in adjusted EPS for the six months — a bit ahead of expectations.

Drivers of growth

The two highlights were BT Sport with average Premier League audiences up 45%, and fibre broadband which is now in reach of 21 million premises and is seeing “strong demand across the market“.

Brokers have been bullish over BT for some time, and over the past 12 months they’ve upped their prognostications for the year a little — and I expect we’ll see forecasts bumped some more before we reach year-end. As far as recommendations go, there’s a pretty big majority urging us to Buy BT shares.

I’m definitely with the brokers on this one.

What damaged BT in the recent past was its pension plan woes as asset values crumbled in the crash, but with the recovery going well that looks firmly in the past now. The company has also reduced its risk a little by taking on insurance against life-expectancy increases, and overall the scheme is looking a good bit more robust.

More to come

With fibre broadband really still in its early days, and BT’s higher-margin content offerings services an increasingly important part in its business, I can see BT easily extending its run to a decade of EPS growth and more.

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