Data from FE Analytics shows its share price edged up 2.19 per cent in the week following the news while the FTSE remained flat.
Performance of stock vs index since 11 Nov
Source: FE Analytics
However, the company’s success is no recent phenomenon: shares are up 157.97 per cent in the past three years while the FTSE All Share has risen 33.65 per cent.
Performance of stock vs index over 3yrs
Source: FE Analytics
The recent football deals have had an effect: in June the company announced it had won the rights to show 38 Premier League games a season.
The company’s sports channel launched in August of this year, and there were initial concerns it had overestimated the size of the market for another channel. However, the football deals give it the rights to two of the most-watched sporting contests in the world.
Another major tailwind for the company is the improvement in the situation of its pension deficit.
The company used to be a part of the Royal Mail pre-privatisation, and retains a huge pension obligation pertaining to the defined benefit schemes of the past.
It has made large cash injections into its pension fund in recent years to cut back the deficit and reduce future service costs.
In 2012 it paid in £2bn and committed to pay a further £325m each March until 2021 to eliminate the shortfall of £4.1bn.
The company had already reduced the deficit from £9bn in December 2008 to that figure of £4.1bn.
With the company’s success, shares have been becoming more expensive, however.
At the time of the company’s final results in 2009, the P/E [price/earnings] ratio was 4.9 times, in 2010 it was 7.2, 2011 8.8 and one year later 9.6.
This March the number was 10.5 and on current forecasts it should rise to 14.8 times by the time of the next accounts in March 2014.
Its current multiple of 14.31 times puts it above the 13.77 times the FTSE 100 is currently trading on. However, the UK index is held back by the parlous state of the miners that feature heavily at the top of it, which means that BT’s valuation isn’t as out of sync as it may seem at first.
However, it is clear that the recovery story is over: the question for now is whether the company can increase revenue and profits.
The company’s half-yearly report to 30 September showed revenues had dipped slightly in the six months to 30 September. The top line was flat before being adjusted for one-off charges, after which it showed a decline of 1 per cent.
Earnings per share growth has slowed over the past two years, but remains positive. The stock also looks interesting from an income angle: our data shows dividends have been growing at an annualised rate of 12.2 per cent since 2010.
This may be why the stock has become popular among UK Equity Income managers: 29 funds in the sector hold it in their top-10.
FE Alpha Manager Neil Woodford is the most committed to it: the stock makes up 7.5 per cent of his SJP UK High Income fund, 6.86 per cent of the Invesco Perpetual Income fund and 6.35 per cent of the Invesco Perpetual High Income fund.
Woodford’s successor on those latter two portfolios, Mark Barnett, has 6.24 per cent of his Invesco Perpetual UK Strategic Income fund in the stock.
Funds with the highest weighting to BT
Source: FE Analytics
The deal for Champions League football is currently for only three years from 2015, and there can be little doubt that it will be keenly fought over when it is up for grabs again. The jury is still out on whether BT Sport will be a long-term success, even though it has received a boost.
The company is also experiencing strong growth in the take-up of its fibre-optic Openreach network and reported that connections were up 70 per cent in the past half-year.
However, this is yet to be reflected in the revenues, which saw a 1 per cent decline from last year.
Openreach has just lost its chief executive, Liv Garfield, however, who was poached to take over Severn Trent.
The roll-out of fibre optic has seen negative press, with rumours circling that the project has been delayed. Garfield has strongly denied this, however, and said that it is ahead of schedule.
The company is the sole provider of the Government’s £530m investment in broadband, which aims to reach 90 per cent of UK homes, giving it a privileged position to say the least.
Take-up is expected to increase long after the project has been completed, so this could be the source of growing revenues for some time to come.
The service has been rolled out to 17 million homes and the company saw a 24 per cent increase in subscribers to its Infinity broadband service in the third quarter – the total now stands at 1.7 million, with a huge amount of growth potential left.
The stock could offer a safer way for investors to take advantage of the developments in consumer technology that are re-shaping the social world.
Some commentators worry about the valuations in small cap tech stocks and in the trendier social media sites such as Twitter and Facebook which have yet to demonstrate how they will be profitable in the long-run.
However, BT Group, through its super-fast broadband and subscription TV service, represents a good way to get access to the same story with a more understandable business model.