BT Group Plc’s Greatest Weaknesses

Two standout factors undermining an investment in BT Group plc (LON: BT.A)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I think of fixed-line telecoms company BT Group (LSE: BT-A) (NYSE: BT.US), two factors jump out at me as the firm’s greatest weaknesses and top the list of what makes the company less attractive as an investment proposition.

1) Debt

It’s a capital-intensive business building and maintaining a fixed-line telecommunications system, and that seems to show in the level of debt that BT carries. With the firm’s third-quarter results in January, net debts stood at £7,640 million, which is about 2.6 times the level of the previous year’s operating profit.

Given the nature of the firm’s activities and as companies go, that’s not an excessive amount of gearing, and BT has made good recent progress at reducing the ratio of net debt to operating profit, both by increasing its profit levels and reducing borrowings:

Should you invest £1,000 in BT right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BT made the list?

See the 6 stocks

Year to March 2009 2010 2011 2012 2013
Net debt 12,607 11,339 9,505 10,155 9,086
Operating profit 301 2,123 2,578 2,919 2,986
Debt divided by profit 42 5.3 3.7 3.5 3

However, I think debt is an area to keep an eye on with BT, as the comparisons to profit may not look as sweet in the depths of the next recession.

BT2) Cyclicality

The great beauty in BT’s business model is that its capital investment in fixed-line assets has potential to earn repeat-revenues for years to come. When consumers sign up for talk or broadband services, for example, they tend to remain for at least a few months. Changing our digital services provider is not something we do every week. Even if we spot a cheaper deal elsewhere, inertia keeps us rooted, so contracts tend to roll around and firms like BT enjoy a constant revenue stream.

However, longer term, BT’s revenue tends to be vulnerable to general economic cycles. We may not change our suppliers every week as consumers, but when times are tough business and residential revenue streams can decline. I think we can see that in the table where BT’s operating profit ramps up from low levels in 2009, when Britain was mired in recession.

What now?

City analysts following BT expect the firm’s earnings to grow by about 9% during the year ending March 2016. Meanwhile, the forward dividend yield is running at around 3.5%.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin does not own shares in BT Group.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »