Today I’ll be taking a closer look at telecoms giant BT Group (LSE: BT.A), and multinational banking firm Standard Chartered (LSE: STAN). Is it the right time to invest in these FTSE 100 companies?
Infrastructure upgrade
Telecoms giant BT announced its annual results yesterday for the full year to the end of March and there was plenty of good news. It reported a 15% rise in pre-tax profits to £3.03bn, compared to £2.65bn for fiscal 2015. Revenues also came in higher at £19.04bn, a 6% improvement on the £17.98bn reported last year. The group also outlined plans for a three-year investment programme of around £6bn to upgrade the network for its newly-acquired EE business and Openrecach infrastructure arm, including the laying of ultrafast fibre optic broadband lines to around 2m premises.
The outlook for the next couple of years is mixed though, with analysts talking about a 7% dip in underlying profits for the current year at around £3.1bn, followed by a solid 10% rise to £3.4bn for fiscal 2018. The company has a good history of dividend growth and this is expected to continue with 15.66p per share forecast for this year, increasing to 17.41p for 2018, giving prospective yields of 3.5% and 3.9% over the next two years.
BT trades on 14 times forecast earnings for this year, falling to 13 for the year ending March 2018. In my opinion, the shares are trading at fair value and don’t offer much in the way of capital growth over the medium term, but income hunters will no doubt be interested in the well-covered dividends, which offer plenty of scope for future growth.
Troubled bank
International banking giant Standard Chartered updated the market with an interim management statement last week for the first quarter ended 31 March. The Asia-focused bank reported a 59% fall in pre-tax profit to $589m, compared to $1.4bn for the same quarter in 2015, with operating income at $3.35bn, 24% lower year-on-year.
Yet the medium-term outlook looks more promising, although earnings are expected to remain flat this year, analysts are talking about 154% growth next year to £1.24bn. The shares currently trade on an expensive-looking 29 times forecast earnings for this year, falling to a more reasonable 14 times for the year ending December 2017.
If the bank manages to achieve the optimistic growth forecasts for 2017, it would still leave the shares trading on an average-looking P/E rating. But if the numbers fall short, the shares would be exposed to a massive sell-off. Not a risk worth taking in my opinion.
The verdict
BT shares looks to be fully valued at the present time, but nevertheless could be appealing to income hunters looking for solid dividend growth. The company offers yields of almost 4%, with plenty of scope for further growth in years to come.
Standard Chartered shares will be trading at fair value if the massive growth forecasts are delivered, anything short of that will lead to a market correction making them far too risky at present levels. Sadly, there’s not much in the way of dividends to temp income investors.
