Are These FTSE 100 Shares a Buy? BT Group, Pearson, and Royal Bank of Scotland Group

LONDON -- I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.

Although Britain's foremost share index has risen 9.3% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely, others are overdue for a correction. So how do the following five stocks weigh up?

BT Group
I believe that BT Group  (LSE: BT-A  )  is ready to accelerate earnings in coming years, as its "triple play" services covering the television, broadband, and telephone spaces move significantly higher.

The company is stepping up the fight with broadcasting behemoth British Sky Broadcasting Group prior to the launch of its BT Sport channel in the summer, which it hopes will reshape the sports broadcasting landscape in Britain and attract customers away from its rivals.

Earnings per share are ready to edge 5% higher in 2013, according to broker estimates, to 25 pence, results for which are due on 10 May. A 1% advance has been pencilled in for the following year, to 25.2 pence, before picking up in 2015, to 27 pence, growth of 7%.

BT Group offers investors access to chunky dividends ahead of an average forward yield of 3.3% for Britain's 100 largest-quoted companies. An expected yield of 3.4% for 2013 is anticipated to rise to 3.8% and 4.4% in 2014 and 2015, respectively, with a projected dividend of 9.4 pence for 2013 expected to advance to 10.7 pence in 2014, and 12.1 pence in 2015.

The firm currently deals on a P/E rating of 11.3 and 10.5 for 2014 and, correspondingly, represents a chunky discount to a prospective earnings multiple of 14.7 for the entire fixed-line telecommunications sector, and 14.9 for broadcasting rival Sky. I believe that this is a snip given the BT's solid earnings potential and progressive dividend policy.

Pearson
I reckon that education and media publisher Pearson  (LSE: PSON  ) is a hugely risky stock selection at present, as severe weakness in its key markets persists, and its 150-million pounds restructuring plan to address nose-diving profits carries heavy uncertainty.

The firm reported a 59% slump in pre-tax profits in 2012, to 434 million pounds, as difficulties in its traditional markets weighed on performance. The firm has outlined an aggressive transformation programme to hasten the move to digital from print, and improve operations in developing markets.

City forecasters predict earnings per share to drop 6% in 2013, to 79 pence, before rebounding to post 14% growth next year to 90 pence. The company was recently changing hands on a P/E rating of 14.5 for 2013, representing a premium to a prospective earnings multiple of 12 for the whole media sector, but which is projected to fall to 12.7 in 2014.

Pearson has continued to build the dividend in recent years, and raised the full-year payout to 45 pence last year from 42 pence in 2011. And analysts expect these to come in at 47 pence and 49.8 pence this year and next, carrying yields of 4.2% and 4.4%.

However, I believe that the potential for fresh earnings pressure makes Pearson too risky a pick at present, a scenario which could herald yet more severe share price weakness.

Royal Bank of Scotland
I believe that the multitude of issues which continue to loom over Royal Bank of Scotland (LSE: RBS  )  present too much earnings risk, and believe that investors can find better value and less potential turbulence among other banking stocks at the current time.

The bank has attracted a fresh flurry of bad press in recent weeks. In March the Financial Policy Committee announced the existence of 25 billion pounds capital shortfall in the British banking sector, funds required to cover the fallout from recent mis-selling scandals over payment protection insurance, or PPI, bad loans, and other risks.

In addition, fresh legal action was launched by the RBoS Shareholders Action Group against the firm's former directors. The collective is seeking up to 4 billion pounds in compensation, claiming that directors "sought to mislead shareholders by misrepresenting the underlying strength of the bank and omitting critical information" relating to the rights issue back in 2008.

Investec expects earnings per share to come in at eight pence this year, recovering from massive losses per share of 54.3 pence in 2012. This is then anticipated to surge more than 160% in 2014, to 21 pence.

However, Royal Bank of Scotland was recently trading on a P/E reading of 37.6 for 2013, and 14.3 in 2014, which compares extremely unfavourably to a prospective earnings multiple of 12.7 for the whole banking sector. I believe that these ratings are unreasonable given the degree of doubt still circling the group, which could whack earnings further down the line.

Aberdeen Asset Management
I am banking on shares in Aberdeen Asset Management  (LSE: ADN  )  to gain momentum once again, and punch fresh highs on plump earnings growth prospects and increasingly lucrative dividends.

The company announced last month that assets under management rose 10% to 212.3 billion pounds as of the end of February, from the close of 2012. As well, net new business inflows during the five months up to February's end stood at 4.6 billion pounds versus a 1.4 billion pound net outflow during the corresponding 2012 period.

And City analysts expect activity to keep rolling, with earnings per share predicted to advance 13% in 2013, to 28 pence, before treading 18% higher in the following year, to 33 pence.

As well, investors can look forward to an increasingly generous dividend policy, with last year's full-year 11.5 pence payout expected to increase to 13.8 pence this year, and 16.3 pence in 2014. These prospective payments carry yields of 3.4% and 4.1%.

Aberdeen Asset Management currently trades on a P/E ratio of 15.2 for this year, providing a significant discount to a prospective earnings multiple of 20.6 for the whole financial services sector, and which is projected to drop to 12.8 in 2014. In my opinion, this presents outstanding value.

Intu Properties
I believe that real estate investment trust (REIT) Intu Properties  (LSE: INTU  )  is set to experience renewed share price weakness amid enduring difficulties for the beleaguered High Street shopper.

Almost all of Intu Properties' portfolio consists of assets outside London, making it even more prone to ongoing difficulties in the U.K. retail sector. The firm -- which placed 86 million shares in February to fund the purchase of the Midsummer Place shopping centre in Milton Keynes -- announced in the same month that net asset value per share remained flat at 392 pence in 2012, while the occupancy rate fell to 96% as of the end of last year, from 97% previously.

Earnings per share are set to drop 1% to 15.9 pence in 2013, according to analyst forecasts, before edging 3% higher during the following 12 months, to 16.4 pence. The company has continued to build dividends, and the full-year payout for this year and next carry yields of 4.4% and 4.5%. However, the emergence of heavy earnings pressure could potentially force these lower.

Intu Properties was recently dealing on a P/E ratio of 21.3 and 20.7 for 2013 and 2014, respectively, cheap at first glance when compared with a forward earnings multiple of 25 for the entire REITs sector. But I believe that the firm's lower rating is justified, given its meagre medium term-earnings potential.

The canny guide for clever investors
Although Intu Properties currently presents too much risk in my opinion, this newly updated special report featuring ace fund manager Neil Woodford highlights a host of other red-hot FTSE winners offering stunning value for money.

Woodford -- head of U.K. Equities at Invesco Perpetual -- has more than 30 years' experience in the industry, and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.


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9/30/2014 12:07 PM
ADN $400.50 Up +1.50 +0.38%
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PSON $1240.00 Up +15.00 +1.22%
Pearson CAPS Rating: No stars
RBS $370.84 Up +9.44 +2.61%
Royal Bank of Scot… CAPS Rating: No stars

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