One multibagging growth stock I’d sell to buy BT Group plc

With the FTSE 100 close to an all-time high, I believe it could be time to consider selling some highly-rated growth stocks, and shifting cash into value opportunities.

Today I’ll highlight one stock I might sell to fund a starter position in telecoms giant BT Group (LSE: BT-A).

The price of growth

At first glance, today’s half-year figures from home repair services group Homeserve (LSE: HSV) suggest that the company’s growth model is continuing to work well. Sales during the first half rose by 16% to £366m, while operating profit was up 12% to £27.5m.

However, it’s worth noting that rising finance costs took a much bigger chunk out of operating profit than during the same period last year. As a result, Homeserve’s adjusted earnings per share were completely flat during H1, at 6.8p.

What’s next?

Homeserve says that its full-year growth prospects “remain unchanged”. This suggests that the firm’s adjusted earnings should rise by nearly 50% to 32.3p per share during the year to 31 March.

However, earnings per share growth is expected to slow to around 10% next year. I think the shares now look quite fully priced on a forecast P/E of 25, with a yield of just 2.2%.

In my view, share price growth is likely to become heavily dependent on market momentum and acquisitions. I’d be tempted to sell some Homeserve shares in order to lock in recent gains, and free up cash for new opportunities.

A potential bargain?

While Homeserve’s share price has risen by about 33% so far this year, BT shares have fallen by almost exactly the same amount.

At about 240p, the shares are cheaper than they’ve been since the start of 2013. I’m starting to wonder whether this sell-off may have created a buying opportunity for contrarian investors.

Why I’m interested

Although BT’s share price has fallen back to levels last seen in 2013, the group’s business has changed significantly since then. Mobile operator EE is now part of BT, and the group also has a growing television operation.

I have mixed views about the wisdom of spending so much money on sports broadcasting rights. But I firmly believe that in the future, telecoms services will be more closely integrated than they are at the moment. So owning the UK’s largest broadband network and its biggest mobile network should pay dividends in the future.

What about the dividend?

BT’s recent half-year results were fairly solid. But I have to be honest. I think that high debt levels and conflicting demands for the group’s cash will mean that a dividend cut is quite likely over the next year or so. I also think that changes may be required to make the television business more affordable.

However, these should be manageable problems. And even a 33% cut to the dividend would still give a yield of 4.2%.

BT’s new chairman, respected City veteran Jan du Plessis, took charge on 1 November. I’m confident he will channel out a path to recovery, which should be communicated to the market over the next year.

These shares may not quite have bottomed out just yet, but I believe now could be a good time to start building a position in this stock.

5 more stocks I'd consider today

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.