To kick things off, I’m putting my hand in the air and declaring that I’m not in love with either BT Group (LSE: BT-A) or Purplebricks Group (LSE: PURP).
My bearish stance on these stocks stretches back a number of years, and the choppiness of BT’s share price over the past year, as well as the steady share price slide over at Purplebricks, suggests that the broader market isn’t exactly bowled over by their investment potential either.
That said, both businesses rose on the release of fresh trading details earlier this week. Does this mean that things are seriously looking up? And if so, which do I think is the better share to buy today?
A sweet release
Purplebricks put out a quite decent set of quarterly results in which it said revenues boomed 20% in the six months to October, a jump the AIM business put down to “double-digit growth in instructions along with a continuation of increasing average revenue per instruction from improved attachment rates of traditional and new ancillary products.”
It said that while the market backdrop in the UK remained “challenging”, it continued to win market share during May-October and that its share of the online hybrid sector reached 74% last month.
As a consequence, the business reiterated its full-year sales guidance of £165m to £185m.
It’s hard to pick faults in the update and I won’t. However, the company still isn’t a ‘buy’ in my book. It’s not expected to start generating earnings until after the current year, i.e. the 12 months to April 2020. And City forecasts make it eye-poppingly expensive at current prices, with a forward P/E ratio of 97.2 times for next year.
Such a reading in my book does not adequately factor in the worsening state of the UK marketplace, nor the possibility that its international expansion programme may well fall flat.
Jump in or stay away?
So is BT a better stock to buy, in that case? Well, its half-year update of recent days showed that, helped by the impact of higher smartphone volumes and restructuring-related cost savings, pre-tax profit shot 24% higher from April to September to £1.34m. The strong result encouraged BT to advise that EBITDA for the full year to March 2019 would likely reach the higher end of its £7.3bn to £7.4bn guided range.
But now the bad news. Revenues at the FTSE 100 titan dropped 2% in the six months to £11.59bn, reflecting further troubles for its enterprise operations as well as the impact of regulated price reductions at its Openreach infrastructure division.
What’s more, BT decided to reduce the interim dividend by 5% to 4.62p per share, a decision that doesn’t exactly shock me given the shaky conditions in its key markets and its gigantic net debt pile which, incidentally, jumped to £11.9bn as of September from £9.52bn a year earlier.
City analysts are expecting the telecoms giant to at least have the strength to keep the dividend locked at 15.4p per share this year. I’m not convinced, however, and therefore give little regard to a giant 6.1% yield.
It’s cheap, sure. But BT’s forward P/E reading of 9.7 times is a reflection of its travails in worsening market conditions. But is it a better buy than Purplebricks right now? For me it’s irrelevant — I wouldn’t touch either of them with a bargepole.
