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Is BT Group the buy of the decade or a crushing investment trap?

A quick look at City forecasts for BT Group (LSE: BT-A) suggests that it’s a share that’s not for the faint of heart.

The FTSE 100 firm has been locked in a profits tailspin of late, on a blend of intense competition amongst Britain’s telecoms titans and a flagging British economy. Neither of these pressures are expected to lessen any time soon and so the number crunchers are predicting that a further 5% bottom-line fall in the year to March 2019 will be followed with another 3% drop next year.

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Reflecting this tough earnings outlook, as well as the twin balance sheet pressures of heavy capital expenditure costs and a hulking pension deficit, brokers are expecting the dividend to fall. A third successive 15.4p per share reward is predicted for the outgoing period, but in fiscal 2020 it’s expected to fall to 15.1p.

Fair value?

There’s plenty of glass-half-full individuals out there, though, who would argue that its troubles are baked into the BT share price. Indeed, a forward P/E ratio of 8.6 times sits comfortably inside the widely regarded bargain-basement territory of 10 times and below and could tempt many share pickers to take the plunge.

What’s more, jumbo dividend yields of 6.7% and 6.6% for this year and next will no doubt attract some curious glances from income investors.

Undoubtedly the telecoms titan has lots to do to reclaim its past glories, though some long-term investors may be looking at its rock-bottom valuations and thinking that this is a great time to buy. It’s not as if the London business is a total write-off just yet — after all, BT’s board has a decent track record of taking banged-up businesses and turning them around.

A world of pain

Right now, though, all evidence suggests that recently-installed Philip Jansen will need to be miracle worker as well as chief executive to bring BT back up, and particularly so with Brexit and all its associated troubles just around the corner.

Make no mistake: BT is in a hole and conditions are just getting tougher. It warned last month of the “aggressive broadband price competition.” Even BT’s shrewd takeover of mobile operator EE three years ago is beginning to become stale. Market share has flatlined and it was said that “trends in the high-end smartphone market continue to be challenging,” reflecting the trend of Brits hanging onto their handsets for longer before upgrading.

It also faces increased regulatory costs through the next year, it advised, whilst its balance sheet once again came under close scrutiny. The company’s net debt mountain, whilst down quarter-on-quarter, was still at £11.1bn as of December. And its pension deficit continued to grow as well, on an IAS19 basis rising to £6bn gross of tax from £5.3bn three months earlier.

It seems as though the market shares my pessimism as well. Whilst the broader FTSE 100 has punched healthy gains in the early days in 2019 — up 7.1% since the fireworks of New Year’s Day, in fact — BT has seen its share price erode 4%. And I reckon the telecoms giant’s share price struggles could intensify as we move through 2019 (and possibly beyond).

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.