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Is BT Group plc A Hazardous Value Trap?

Today I am looking at whether BT Group (LSE: BT-A) (NYSE: BT.US) is a decent choice for value hunters.

Dial in for delicious value

Shares in BT have enjoyed a terrific start to 2015, surging 10% since the turn of the year and touching fresh record peaks of 460p in the process. Investor sentiment in the telecoms giant has steadily improved as the galloping popularity of its ‘multi-services’ proposition shows no signs of slowing.

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Despite this recent share price strength, however, BT still offers plenty of bang for one’s buck in my opinion. The company has long been a reliable provider of annual earnings growth, and the City analysts expect a further 5% advance in the 12 months concluding March 2015. Additional growth to the tune of 4% and 6% is anticipated in 2016 and 2017 correspondingly.

As a result BT changes hands on a P/E reading of 14.5 times forward earnings for this year, comfortably below the benchmark of 15 times which reflects attractive value for money. And the earnings multiple falls to just 14.1 times for 2016 and 13.1 times for the following year.

On top of this, BT’s progressive dividend policy is also expected to offer increasingly-bountiful rewards in the coming years, confidence in which was boosted by the firm’s decision to hike the interim dividend 15% back in October.

BT is predicted to lift the total payment 17% this year to 12.8p per share, and further rises of 14% and 12% — to 14.6p and 14.6p — are estimated in 2016 and 2017 respectively. Consequently, a handy-if-unspectacular yield of 2.9% for this year leaps to 3.3% for next year and 3.7% for 2017.

Investment to propel returns higher

Of course, stock pickers should be aware that BT is having to fork out gigantic sums to keep momentum across its Consumer division rolling.

Indeed, the company completed a massive £1bn share placement just today to help fund the £12.5bn takeover of mobile operator EE. And BT is also having to shell out vast sums to keep its fibre-laying programme rolling across the country.

Still, investors will be relieved that last week’s Premier League auction was not as heavy on the wallet as was initially feared, with the cost of BT’s live broadcasting rights rising just 18% for the 2016-2019 period. And the telecom play’s balance sheet was given a further boost late last month after it hammered out a deal with its pension fund’s trustees, which reduces contributions to the scheme’s £7bn deficit to £2bn through to 2017.

In my opinion BT’s aggressive capex drive to boost its ‘quad play’ operations should see demand continue to surge in the coming months and years, a terrific omen for future earnings and dividend growth.

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Royston Wild 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.

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