Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at BT (LSE: BT-A) (NYSE: BT.US)
What is the sustainable competitive advantage?
BT’s competitive advantage used to lie in the company’s dominance over the UK’s fixed line telecommunications market. However, now the company is one of the world’s leading telecommunications services providers.
What’s more, this world leading position and the company’s international operations have allowed BT to sidestep the cut-throat competition occurring in the telecommunications market here in the UK.
In particular, due to the international demand for BT’s high margin telecommunications services, the firm’s net income has exploded 103% over the last four year, while revenue has declined 14%. the company’s net profit margin has also widened from 5%, to 12%.
However, the company’s entry into the pay-tv market has drawn it into direct competition with more experienced peers BSkyB and Virgin Media.
Having said that, BT has been able to use its existing dominance in the telecoms industry to compete with its peers head on. For example, BT’s recent £800 million acquisition of rights to broadcast the premiership was heavily sought after by peers and has now put the company in somewhat of a market leading position. Indeed, only last week peer Virgin Media has signed a contract with BT, worth £75 million a year to give its customers access to the live matches.
Company’s long-term outlook?
Despite BT’s good performance during the last four years, over the longer term, the company’s outlook is now cloudy after the announcement that CEO Ian Livingston is leaving the company after returning the company to growth during the last five or so years.
Still, Livingston has put the company on a good-footing and cash is now flowing into BT’s coffers. Furthermore, the company’s operations look as if they are able to run themselves, without too much input from management, a good trait to look for in a buy and forget investment.
Additionally, it is unlikely that BT will lose its reputation as one of the world’s premier telecommunications companies any time soon so the firms services will be in demand for a long time yet.
Foolish summary
All in all, BT is world leader in the extremely defensive telecommunications industry and the company is now generating huge amounts of cash from its broadband and service operations. Furthermore, the company’s recent entry and subsequent dominance over the pay-tv market give me confidence in BT’s ability to out-manoeuvre its highly competitive peers.
So overall, I rate BT as a good share to buy and forget.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article.
