So, why is it climbing? And should I be adding BT to my portfolio?

The rising BT share price

At the end of October last year, BT published its half-year results. They weren’t exactly ground-breaking. Revenue and underlying profits continued to fall by 7% and 5%, respectively. So why did the BT share price surge? Well, upon closer inspection, there appears to be some encouraging evidence of a potential business turnaround.

BT’s management team has long since been investing in new projects to get it back on track. And these investments seem to be paying off. Total Fibre-to-the-Premises (FTTP) customers increased by 60%, with around 40,000 homes being connected every week. Low-margin legacy copper-based products are being discontinued as of September this year. And its total 5G customers increased to 1m.

Following the later publication of its 2020 Q3 results in February, the BT share price surged once more for similar reasons. FTTP and 5G customers continued to grow. The latter was exceptionally impressive as an additional 1.1m customers were added in three months.

Combining all of this progress with additional 5G contract wins has allowed the management team to raise earnings guidance, pay down debt, and reinstate shareholder dividends, with the first payment expected later this year.

Risks to consider

Today, BT is a crucial player in the UK communications technology & services sector. It owns and operates the country’s entire core fixed network and provides services to around 35% of the population under its brands (BT, EE, Plusnet and Openreach).

However, this wasn’t always the case. In order to reach this level of dominance, BT spent a lot of money securing contracts during the rollout of the 3G, 4G and now 5G networks. But with limited pricing power due to sector regulations, the firm wasn’t generating enough cash flow to fund these expenses. And so, it turned to debt financing as a solution.

While this undoubtedly enabled the business to grow, it also led to a monumental pile of long-term obligations. Today BT owes more than £25bn in debt and debt-equivalents. By comparison, based on BT’s current share price, its total market capitalisation is around £15bn. Needless to say, the firm is highly leveraged.

And let’s not forget that a high debt level means large interest payments. In BT’s case, its interest expenses amount to around £750m per year versus an operating profit of £3.1bn. In other words, almost 25% of underlying earnings are disappearing to simply maintain its existing debt level. 

The bottom line

Overall, BT looks like it’s in a much better position than when I last looked at it. I find the continued growth of its 5G and FTTP customers is quite encouraging and it could be an early indicator of a potential turnaround for BT’s business.

But the debt level still concerns me, and with a large deferred income tax bill on the horizon, the company remains financially restricted. For now, I’m waiting to see the full-year results for 2020, and so the stock is staying on my watch list.

The post The BT share price is rising. Should I buy now? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Zaven Boyrazian does not own shares in BT Group. 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.

Top telecoms?

TalkTalk Telecom Group (LSE: TALK) shares have had a tough 12 months, suffering a 43% fall to 221p. But that could well be overdone, with the shares now on a predicted P/E for the year to March 2017 of 15.6, dropping to 12.7 a year later. But what does today’s first-quarter update reveal?

Despite a lower customer base, overall revenue has been flat, with corporate revenue up 7.5% and data revenue up 38.5%. The company expects full-year revenue to “grow modestly“, and has reiterated its guidance of headline EBITDA of £320m-£360m. Debt is expected to keep falling, and the firm says its 2017 dividend should be at least in line with 2016’s and covered by cash flow.

The dividend, forecast to yield 7%, does concern me as it wouldn’t be covered by currently-forecast earnings per share, while net debt stood at £679m at year-end — and I don’t see that as optimum use of cash. But, with that low P/E valuation and EPS growth forecasts giving TalkTalk attractively low PEG valuations for this year and next, I think I do see a bargain here — and very possibly a takeover target.

Electronics winner

Shares in Electrocomponents (LSE: ECM) climbed by more than 9% to 282p by midday, after the electronics and engineering distributor released an impressive first-quarter update. Although overall sales only grew by 1%, that did build on a stronger fourth quarter, and showed sales growth slanted towards Europe — though Asian and North American sales are falling.

But is the firm’s focus on Europe a risk in the post-Brexit world? All chief executive Lindsley Ruth had to say was that it’s too early to tell, but the fall in the value of the pound should make the firm’s exports more attractive and should provide a benefit to profits stated in Sterling. One to buy? There’s some uncertainty here, but with the firm’s undemanding P/E of 17.5 this year, dropping to 15.5 next, coupled with expected dividend yields of 4.5% and with EPS growth forecasts, it looks relatively safe for a growth stock.

Silicon success

Shares in IQE (LSE: IQE) have had a rocky ride, losing 44% over the past five years. But a trading statement from the silicon wafer supplier this morning provided a 15% boost, taking the shares to 20.4p. Sales in the first half of the year are expected to be at least 15% higher than in the same half of 2015, with revenues coming from an increasingly diversified range of products and services.

Net debt is reducing thanks to strong cash generation, with £3.5m in license income from joint ventures expected to add to the pot in the half. Chief executive Dr Drew Nelson could barely have sounded more upbeat, telling us that “with the progress being made on new product qualifications, further product developments and with increasing revenue diversity, we remain on track to achieve full year expectations”.

With the shares valued at a mere six times forecast earnings, and two years of EPS growth forecast to follow on from the previous three, IQE is my pick of the bunch here.

The post Three shares to buy after today’s updates? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Extra boost

Sometimes we can get an extra boost when we see share prices unfairly depressed, as has happened with BAE Systems (LSE: BA) in recent years. Back in 2011, with recession surrounding us and defence prospects looking a bit grim, BAE shares plunged as low as 253p and ended the year on a P/E of only a little over six — even for a depressed sector, that seemed ludicrously cheap.

Between that low point and today, BAE shares have soared by 90% to 480p, and dividends over the period would have made that up to around 125% — way better than a doubling, in just a bit over four and a half years.

How quickly might BAE shares double again? Let’s suppose the forecast return to EPS growth of 6% in 2017 is sustained and the dividend continues to yield around 4.5%, and also assume that the shares return to P/E in line with the FTSE 100 long-term average of around 14…

That’s perhaps a bit optimistic, but including dividends it suggests BAE shares could double again by the end of 2020 — that is, in just over another four years.

Oily double?

Speaking of depressed industries, we have the slump in BP (LSE: BP) shares. Well, I say slump, but BP shares have actually only fallen by 30% since mid-2014, to 364p, and two years of very high dividends would have reduced your loss to only around 15% — and if that’s the biggest share price disaster we ever face, we won’t be doing too badly at all.

But with Brent Crude now edging ever closer to $50 a barrel — it’s at $49.33 as I write — what does the future hold for BP shares? Forecasts suggest a a P/E of only around 13.5 for 2017, and they’ve been based largely on the low oil prices of the past couple of months. But analysts are already upping their forecasts in the light of the strengthening oil price, and are putting out a pretty strong Buy rating on BP shares.

The prospects for BP really depend on the future of the oil price and where it will stabilize. BP apparently believes that it will get back to $100 again in the future as demand rises, although in the short to medium term that would seem optimistic. But a number of pundits are suggesting around $75 in the medium term, and that could easily double BP’s earnings per share — and, assuming the P/E remains the same, that would double the share price.

Quad-play telecom

Now that BT Group (LSE: BT.A) is back in the mobile business through its acquisition of EE, and is doing nicely in the content-delivery stakes, it has to be the quad-play operator to beat. Over five years, BT shares have put in the best performance of the three here today, gaining 123% on share price alone with dividends taking that up to around 150%.

Even after that, and with dividends expected to yield 4%, BT shares are on a forward P/E for the year ending march 2018 of just 13.5. That’s likely due to a 7% fall in earnings on the cards for the current year, after 2015-16 saw EPS growth slow to 5%.

But I think using that as a valuation misses one key fact — BT has been in a high capital expenditure mode in recent years, and that’s set to drop as it goes about integrating its acquisitions and hopefully enjoying future cost savings as a result.

How long it will take for BT shares to double again is anybody’s guess, but I’d say there’s at least an evens chance it’ll happen in the next five years.

The post Which will double the quickest: BAE Systems plc, BP plc or BT Group plc? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• Just how bad could it get for the BP share price?
• 1 FTSE stock tipped to handily outdo Rolls-Royce shares by 2027
• BP shares are falling. But is the oil market actually tighter than investors think?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Results for the year just ended in March 2016 are due on 5 May, and after a 12% rise in EPS last year, forecasters are expecting a fall back of 2% this year, followed by just a 1% pick-up by March 2017. But with growth expected to accelerate again in 2017-18, does the recent price stagnation make BT shares a good buy now?

BT’s acquisition of EE has only just been completed, and we should be seeing a significant contribution to the bottom line in the coming years. And at Q3 time, chief executive Gavin Patterson enthused about BT’s 4.7% revenue growth as being “our best result for more than seven years“.

On current expectations, the P/E would drop to 13 by March 2018, when the dividend would be yielding 3.9%, and that should make BT shares good value if it comes off — eyes peeled on Thursday.

Oil comeback?

With the price of oil still gradually creeping up and standing above $45 per barrel today, Premier Oil (LSE: PMO) could be set for a very nice comeback from what looked like a dire situation at one point. Premier Oil shares were suspended at 19p in January while the world awaited news of a significant event — it turned out to be the acquisition of E.ON’s North Sea assets for $120m (which I still reckon was a steal), and the shares have since climbed back up to 69p.

At the time, investors were worrying about Premier’s $2.2bn debt mountain. But the firm’s covenants look safe until well into 2017, the E.ON assets should be immediately cash generative, and a modestly-recovering oil price is all that Premier really needs for its future to be reasonably safe.

We should get some news on the E.ON integration, together with an updated snapshot of the whole company, when Premier releases its latest trading and operations update on 11 May — and as a holder of Premier shares, I’m hoping it will help blow the cloudy skies further away.

Buying opportunity?

ITV (LSE: ITV) shareholders have enjoyed a cracking five years, seeing their shares treble in price to 229p. That’s been on the back of five years of strong earnings growth, with revenue growing by 34% between 2011 and 2014, and EPS up 85% — oh, and the dividend has been lifted from 1.6p per share in 2011 to 6p in 2015.

But despite that great record, ITV shares have been falling back of late, giving up 20% since the end of July 2015. The reason is very likely down to a slowing of growth expectations — the 8% and 7% EPS growth forecasts for this year and next respectively look fine to me, but it can lead those who expect super growth to continue forever to jump ship.

And the fall has dropped the P/E of ITV shares to 12.6 for this year, and as low as 11.7 on 2017 forecasts — while the dividend is set to rise to 7.4p this year for a yield of 3.3%, then to 8.6p for 3.8% in 2017. I reckon that’s given us a nice buying opportunity, and I’ll be watching for first-quarter results due on 12 May.

The post 3 Hot Shares for May: BT Group plc, Premier Oil PLC & ITV plc? appeared first on The Twelfth Magpie.

More reading

• £500 gets 617 shares in one of the top FTSE income stocks to buy!
• Here’s how to invest £3,600 in UK shares to target a 7% dividend yield
• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now

Alan Oscroft owns shares of Premier Oil. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But the shares took a tumble today, dropping 18% by the time of writing, to 4.05p, caused by a 27% fall in revenue for the six months to December 2015. That was, we were told, due to the deferment of some orders combined with increasing project lead time. The deferments were known in October, so might the price fall be a bit of an over-reaction?

Well, there was an increased net loss, of A$1.3m, and the firm reported cash reserves of just A$0.9m — although a new patent licence agreed after the end of the period should bring CAP-XX an up-front payment of at least A$2.4m. There are no forecasts for profits yet — in fact, there are no forecasts at all —  so it’s hard to quantify. A big risk or a company with great potential? Possibly both.

Pretty skin

We also had interim results from Sinclair Pharma (LSE: SPH) today. They were greeted with a little more enthusiasm and the share price gained 3.4% to 34.6p as a result. Sinclair, which specialises in aesthetic dermatology (skin lifiting, collagen stimulation, and things like that), reported a loss of £14.1m for the period, up from £10.7m, with a 2.8p loss per share compared to 2.1p a year previously.

That came from an expected fall in sales to £7.7m, from £10.5m, attributed to “planned distributor de-stocking“. But the third quarter is expected to bring revenue in excess of £8m, and along with an amendment to the payment terms for Sinclair’s acquisition of AQTIS Medical BV, that pleased the markets. The disposal of Sinclair’s non-aesthetics brought in £132m, enabling it to clear all debt and leaving net cash of £75.4m at 31 December.

With losses expected to continue for at least the next two years, making any valuation of the company pretty difficult, it’s a big risk — but it could be one worth taking.

A great start

Since flotation in February 2014, shares in Manx Telecom (LSE: MANX) have put on 34% to reach 215p. And on top of that, the company paid out a 5.6% dividend for 2014, and has just announced a 5% rise in its 2015 dividend to 10.4p — yielding 4.8% on today’s elevated share price.

Revenues were pretty flat for the year, but underlying pre-tax profit gained 27.9% with underlying EPS up 19.4%, and the company recorded strong operational cash flow of £25.4m. How does it do so well? Having a monopoly on fixed-line communications in the Isle of Man certainly helps (and the firm has just renewed its government contract for another five years), and it also has about three quarters of the island’s mobile business.

With 4G rollouts continuing (after helping boost mobile revenues by 9.3% in 2015), forecasts suggest more of the same over the next couple of years, with the firm’s progressive dividend policy set to boost the annual cash handout by 5% per year.

The post Should You Buy Cap-XX Limited, Sinclair Pharma PLC And Manx Telecom PLC After Today’s Results? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With the acquisition of EE, the UK’s largest mobile network, and its £2bn investment in sports and other prime telly, BT can now compete with the rest on all telecoms services. And with forecast P/E multiples of only around 13 to 14, it’s not an expensive foray into the sector.

Expensive mobile

Compare that with Vodafone (LSE: VOD), and you’ll see a company that only does mobile telecoms and whose share price has gone nowhere in the past five years – it’s the weakest performer of the four, with just a gain of 15% to 217p. Granted, Vodafone has higher dividends on the cards, with more than 5% forecast for this year and the next two. But they’re nowhere near covered by earnings, and the shares are on a P/E for the year to March 2016 of more than 44!

Vodafone is developing its next-generation network which will cover a fair amount of Europe, and that will surely boost profits some time in the future. But right now the outlook is uncertain, and the shares seem to be priced for a takeover – they’re too expensive in my book.

Second place?

The five-year share price record for Sky (LSE: SKY) isn’t too hot either, with just a 22% gain to 1,004p. Dividend yields come out slightly ahead of BT’s with 3.4% forecast for the year to June 2016, and they’re well enough covered and are progressive. But on P/E terms, the shares look a little pricey to me – this year’s forecast gives us a multiple of 16, rising to above 17 with an earnings fall predicted for 2017.

Sky’s biggest non-financial strength is its position on the premium TV market, and though BT has made small inroads and cable TV is a serious competitor, Sky looks like it will be the dominant provider, especially for sports, for the foreseeable future.

Security breach, oh dear!

TalkTalk Telecom (LSE: TALK) shares were actually outperforming BT until June last year, but they were already going off the boil before a damaging security breach in October 2015 exposed some customer data to hackers. Thankfully the damage was small, but it has shaken confidence in the company’s ability to protect its customers. The share price retreated to a five-year gain of 77.5% – better than Vodafone and Sky, but still way behind BT.

The price has regained 24% since February’s low, to 239p, and there’s strong double-digit earnings growth forecast for the next couple of years, but it would take until March 2018 to get the P/E down under 14 from today’s 25. TalkTalk also has what I see as a bizarre dividend policy. It’s been making uncovered payments for the past two years with the same expected for March 2016’s mooted 6.6% yield, but even by 2018 we’d still see it only just covered.

There’s room in the telecoms sector for all four to do well, but BT still looks the most prudent long-term buy to me.

The post Why BT Group plc Still Beats Vodafone Group plc, SKY PLC And Talktalk Telecom Group PLC appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• Which will reach £2 first, Lloyds or Vodafone shares?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Safe dividend

Shares in BT Group (LSE: BT-A) are up only a modest 6% in the past 12 months, to 469p, but over five years they’ve rewarded investors with a 158% rise — with dividend yields of around the 3% level thrown in as a bonus. It comes after several years of solid rises in earnings per share, and though there’s a small EPS fall on the cards for this year due to the firm’s rights issue in 2015, growth is expected to resume in the year to March 2017.

BT’s acquisition of EE puts it firmly at the head of the UK telecoms sector, and though its dividend isn’t one of the highest around, it’s progressive and is surely one of the safest in the FTSE. A prospective P/E of 14.2 looks cheap to me.

High valuation

I’m less impressed by Vodafone (LSE: VOD) and its very high P/E of 45 based on March 2016 full-year expectations, dropping only as far as 38 on 2017 forecasts. The shares are down 3.6% over 12 months to 216p, and up only 19% in five years, after two years of rapidly dropping earnings due to the fall-off in plain old voice calls and the massive reinvestment in Vodafone’s next generation data networks in Europe.

Vodafone shares look priced possibly for a takeover bid, and rumours of a merger with Liberty Global are surfacing again after the two announced a joint venture in the Netherlands. But if that’s not behind the high share price, then there’s an awful lot of growth built into it today — there’s surely growth to come, but it seems too uncertain to me to justify such a lofty P/E.

And the very high 5.3% dividend yield doesn’t impress me, as it’s only around 40% covered by earnings.

Top telly?

If we turn to Sky (LSE: SKY) we see a 9% price rise in a year, to 1,021p, though only a fairly modest 30% in five years. Despite that, and after a couple of years of stagnating earnings, Sky shares are on a forward P/E of 16. That’s only a little ahead of BT’s, and its dividend yields are on a par.

In its recent interim results, Sky reported continued growth in customer numbers across its product offerings — it now has 21.5m customers and is expanding across European countries too. Though BT did well to grab control of a wedge of Premier League football rights, Sky remains the nation’s favourite supplier of pay TV.

Data breach forgotten?

Then we come to TalkTalk Telecom (LSE: TALK), and a 50% share price fall since June 2015, to 204p. Much of that was down to the embarrassing security breach it suffered last year, so could we be looking at an oversold bargain now?

Forecast EPS growth of 50% this year and 44% next would drop the 2017 P/E to 11.5, and provide a PEG ratio of just 0.3 — and that’s a very strong growth indicator. But the big concern is the very high predicted dividend yields of 6.8% and 6.3% respectively, because the earnings just aren’t there to cover them — this year’s would be uncovered, with next’s covered only 1.2 times.

My choice? I think the whole sector has great prospects, but my pick would be broadband leader BT, with Sky in second place — and with TalkTalk as an outside bet.

The post Which Is Best For 2016, BT Group plc, Vodafone Group plc, SKY PLC Or Talktalk Telecom Group PLC? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.