After a stunning 2013 that saw its share price rise by 62%, 2014 has been somewhat disappointing for BT (LSE: BT-A). That?s because the company?s share price has largely tracked the FTSE 100 during the course of this year and is flat year-to-date.
However, could 2015 turn out to be a repeat of 2013, with BT?s share price soaring to higher highs? Or, will 2015 prove to be a carbon copy of 2014, with more lacklustre performance ahead?
A major appeal of BT for many investors is its relatively reliable growth numbers. Indeed, over the last five years,…
After a stunning 2013 that saw its share price rise by 62%, 2014 has been somewhat disappointing for BT (LSE: BT-A). That’s because the company’s share price has largely tracked the FTSE 100 during the course of this year and is flat year-to-date.
However, could 2015 turn out to be a repeat of 2013, with BT’s share price soaring to higher highs? Or, will 2015 prove to be a carbon copy of 2014, with more lacklustre performance ahead?
A major appeal of BT for many investors is its relatively reliable growth numbers. Indeed, over the last five years, BT has been able to increase its bottom line in every year, with it growing at an average rate of 12% per annum during the period. While the current year is set to be something of a disappointment compared to recent years, with earnings forecast to grow by just 3%, the longer term looks very bright for BT.
Evidence of that potential could be seen in the company’s recent update, with BT’s superfast broadband continuing to dominate the wider market and one in three of the company’s retail broadband customers now enjoying superfast speeds. Furthermore, earnings growth of 7% for next year shows that BT is set to bounce back from 2014’s slower growth rate. That’s despite the company’s cost base having the potential to rise next year as a result of commitments such as the exclusive rights to screen Champions League football, which will cost £900 million over three seasons.
Despite BT having a strong track record of growth and being forecast to increase its bottom line by 7% next year, its shares still trade at a discount to the wider market. For example, BT has a price to earnings (P/E) ratio of 13, while the FTSE 100 has a P/E ratio of 15.1. Therefore, there could be as much as 16% upside in BT’s share price simply from an upward rerating taking place over the medium term so that its P/E ratio matches that of the wider index. Furthermore, BT also has the potential to trade at a premium to the wider market due to its relatively stable earnings growth profile, which could push its share price even higher.
While the UK pay-tv and broadband market is undoubtedly becoming more competitive, with incumbents such as Sky and Virgin Media as well as an anticipated new entrant Vodafone, competing with BT for new business, there is still tremendous potential for growth. For example, BT is successfully differentiating itself from competitors by having exclusive rights to a number of sporting events, such as Moto GP, Premier League football and Champions League football.
As a result, this allows it to compete on more than just price and, as Sky has successfully done over the last two decades, means that margins can be maintained at relatively high levels, which is clearly positive news for BT’s bottom line. As a result, and while 2014 has been a disappointment, 2015 could be a superb year for investors in BT, with the company having the potential to beat the FTSE 100 over the next 12 months.
Of course, finding stocks such as BT that can beat the FTSE 100 can be a challenge - especially if you lack the time to trawl the index for the best value and fastest growing companies. That's why The Motley Fool has written a simple, straightforward and easy-to-implement guide called 10 Steps To Making A Million In The Market.
The guide is completely free, comes without any further obligation and could help to boost your returns in 2015. It could even help you retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle.
Click here to obtain your copy - it's completely FREE and there's no further obligation attached to it.
Peter Stephens 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.