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Is the BT share price primed to smash the FTSE 100?

If you’re looking for stocks with market-beating potential, I believe there are good reasons for thinking FTSE 100 telecoms giant BT (LSE: BT-A) could deliver the goods.

As well as discussing the investment outlook for this blue-chip stock, I’ll also look at the prospects of a small-cap broadband peer you’ve probably never heard of. The company in question is AIM-listed Bigblu Broadband (LSE: BBB), whose shares are up 2.2% today on the back of annual results this morning.

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Entrepreneurial team

Bigblu — formerly called Satellite Solutions — was founded in 2008. Acquisitions and organic growth have enabled it to become a leading player in its field. This field being the provision of alternative super-fast satellite and fixed wireless broadband solutions for those consumers and businesses unserved or underserved by fibre broadband in Europe and Australia.

In today’s results, for its financial year ended 30 November, it reported a 13% increase in total customers to 113,000, and said it “remains confident of growing its customer base to 150,000 by 2020.” It reckons it has an addressable market of 27m customers in Europe and 1m in Australia, who are “trapped in the ‘digital divide’ with limited or no fibre broadband options.”

At a share price of 116p, the company has a market capitalisation of £65.8m, which is a cheap-looking 1.2 times the annual revenue of £55.4m reported today. This top-line number was 26.1% ahead of the prior year (including acquisitions), and 8.2% higher on an organic basis. The company is currently loss-making (£13.3m last year), but with increasing economies of scale and “the largely fixed operating cost structure of the business,” future revenue growth should translate rapidly into rising bottom-line profitability.

Obviously, at this stage Bigblu is a higher-risk investment proposition. However, I like the look of the business and the entrepreneurial founders-led management team. I’d be happy to buy a small initial stake in the company today, with a view to increasing it, if the business develops according to plan.

Man for the job

I’ve long believed BT hasn’t made the most of its scale and competitive advantages in key areas. I also think it’s yet to really exploit the potential of its acquisition of EE. However, I’m very optimistic that new chief executive Philip Jansen could be the man for the job, and I rate the stock a buy today.

Previously, as chief executive of payment processing company Worldpay, Jansen led an overhaul of its technology infrastructure and invested boldly in a number of key areas for growth. Following the company’s merger with US peer Vantiv, he led the integration of the two businesses, before being poached by BT.

At a current share price of 223p, BT trades on just 8.3 times forecast earnings for its current financial year (ending 31 March), and sports a running dividend yield of 6.9%. The board has previously pledged to maintain the dividend for this year and the year to March 2020. However, I think it would be prudent, if you’re considering investing — particularly for income — to work on the basis of the dividend being rebased in fiscal 2021.

This is because I think it likely Jansen will want to invest for growth. Currently, after dividends, pension payments, and spectrum costs, there isn’t too much free cash flow left for investment. A rebasing of the dividend from the current £1.5bn to say £1bn would help Jansen pursue a bolder growth strategy.

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G A Chester 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.