Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This P/E Suggests BT Group Is a Hold

LONDON -- The FTSE 100 has risen by nearly 20% over the last six months, and many top shares are beginning to look quite expensive.

I'm on the hunt for companies that still look cheap, based on their long-term earnings potential. To help me hunt down these bargains, I'm using a special version of the price to earnings ratio called the PE10, which is one of my favorite tools for value investing.

The PE10 compares the current share price with average earnings per share for the last ten years. This smoothes out any short-term volatility and lets you see whether a company looks cheap compared to its long-term earnings.

Today, I'm going to take a look at the PE10 for BT Group  (LSE: BT-A  ) (NYSE: BT  ) . The company's share price recently hit six-year highs after it beat forecasts with its latest results, so is there any value left in the stock?

Is BT Group a buy?

BT is currently investing heavily in expanding its fiber broadband network and developing a pay television service -- two complementary services it hopes will attract customers from British Sky Broadcasting and Virgin Media.

After a rocky few years, BT's profitability and cash flow are improving, and the firm raised its dividend by 14% to 9.5 pence for the full year.

Is now a good time to buy BT?




BT Group



BT's current P/E of 12.5 looks quite modest and is quite an attractive valuation. However, the company's PE10 of 16.8 suggests that based on its historical average earnings, BT shares are quite fully priced. Its dividend yield of 3% is only average, too.

While I wouldn't rule out buying BT shares at their current price, I don't think they are cheap, either.

In my view, BT is currently a hold.

Pension problems?
One potential risk of investing in BT is the company's 4.5 billion pound pension deficit.

Although it is unlikely to threaten BT's survival, it could threaten its dividend growth, as last year's pension deficit payment of 325 million pounds was nearly half the 750 million pounds it spent on dividends.

Quad-play hopes
BT is pinning its future growth hopes on becoming a "quad play" operator, offering a combined broadband, telephone, television, and mobile service to its customers.

Although the quad-play goal looks attractive and could drive substantial growth, there are a lot of potential hurdles. BT's television service launches in August, which may be the first test of its new strategy.

Can you beat the market?
If you already own shares in BT, then I'd strongly recommend that you take a look at this special Motley Fool report. Newly updated for 2013, it contains details of top U.K. fund manager Neil Woodford's eight largest holdings.

Woodford's track record is impressive: if you'd invested 10,000 pounds into his High Income fund in 1988, it would have been worth 193,000 pounds at the end of 2012 -- a 1,830% increase!

This special report is completely free, but availability is limited, so click here to download your copy immediately.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2445058, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:58:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:02 PM
BT $23.25 Down -0.57 -2.39%
BT Group CAPS Rating: *****
BT-A $378.45 Down -0.80 -0.21%
BT CAPS Rating: No stars
SKY $822.50 Up +2.00 +0.24%
Sky CAPS Rating: No stars
VMED.DL $0.00 Down +0.00 +0.00%
Virgin Media CAPS Rating: **