21st March 2016
Ian Forrest, investment research analyst at The Share Centre, explains why he is backing shares in BT…
In its most recent trading update, telecommunications powerhouse BT said that trading was strong, and had been so for a considerable time.
The acquisition of mobile network EE will enable the group to offer the ‘quad-play’ of fixed line, mobile, broadband and television services as a package to consumers.
Furthermore, the announcement from Ofcom that BT will not have to divest its internet infrastructure division Openreach is also good news for investors.
BT continues to invest in order to expand its operations in Asia and Latin America where it sees strong potential for further growth. Closer to home, the group has accelerated the roll-out of its fibre optic programme and expects to have 90% UK coverage by the end of 2017.
Investors should also acknowledge that it is planning to roll out ultrafast broadband services, with speeds up to 500Mbps, to most of the UK within a decade.
The company’s TV channels, which feature Premier League and Champions League football and rugby, continue to attract plenty of new subscribers and it is starting to take market share from other providers.
Moreover, BT has been successful at negotiating increases in the number of live Premier games it show, which is great news for investors.
Although analysts will now be revising their forecasts significantly to take account of the future contribution from EE, it is worth noting that the company still expects to grow dividends by 10% – 15% per annum over the next two years.
Investors should also appreciate that the group is currently trading at a year low, making it more attractive for income seekers.
We continue to recommend BT as a ‘buy’ as the company transforms into the dominant telecoms provider in the UK, develops full value from the EE takeover and uses its strong cash flows to raise dividends well above inflation.