BT Group plc (ADR) (NYSE:BT)

value screen

.6

Telecommnications should pick up when world economy gets better

F

Cleaning house

Low price to future revenue, cost cutting opportunities, potential takeover

This stock was chosen as part of a group of stocks based upon criteria which focused heavily on dividend yield, cash flow, and balance sheet information.

good plan economy woring against them now merge w/vod would be a good surprise move

The analysis presented is based on a current price of $11.23.

Although fluctuating, the EPS has been generally been growing since 2001. For the 2002-2008 period, the compounded annual growth (CAGR) has been 16%. The return on equity (ROE) has exceeded 30% for the last six years, and the free cash flow has been positive, though also fluctuating, since at least 2001.

Before I look at the valuations, I look at three indicators of financial safety. For this stock, two of three are quite good. The Piotroski F is 7; 2 or below indicates caution, while 8 or 9 indicates that the stock is expected to rise within the next year. The Sloan accrual is -15.63; 5 or higher is high risk, while -5 or lower is excellent. The Altman Z is in the danger zone with 1.4; below 1.8 is risky, above 3 is the safe range. However, if recalculated with TTM (trailing twelve months) data, the Altman rises to 3.02 (just within the safe range). The danger reading may have been due to several small acquisitions may have impacted BT’s financial filings.

I use more than one valuation method to gauge intrinsic value; the first three all provide a substantial margin of safety (MOS). The first three are standards in the valuation literature. The estimate based on Graham’s formula was $41 (72% MOS). The Earnings Power Value (value of the firm) was estimated, on a per share bases, to be $64 (82% MOS). The Discounted Cash Flow estimate valued the stock at $133 (92% MOS).

The last two were based on a spreadsheet found on the AAII website; these are designed to mimic Buffett’s valuation methodology. One is based on projecting EPS growth 10 years into the future based on past EPS growth; I discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings (including dividends when applicable) return of 15%. Based on this method the target purchase needs to be below $12, and at the current price there is a 7% MOS

The second is based on estimating EPS growth through the sustainable growth rate. The per-share projected book value is estimated by taking the previous year’s book value, adding EPS and subtracting dividends (when applicable). The projected EPS is estimated by multiplying the projected book value by the average Return on Equity, and the projected dividend is estimated by multiplying the projected EPS by the average payout ratio. I then discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings return of 15%. Based on this method the target purchase needs to be below $57, and at the current price there is an 80% MOS

To ascertain that the price is attractive to me, I take one more thing into consideration. At the current price, would I expect an immediate 15% return on my investment based on earnings and dividends? In this, the EPS represents about 27% of the share price by itself, so the 14% dividend yield is gravy. However, had the dividend been needed to achieve the desired 15%, I would have discounted it because there is a moderate to high risk that the dividend may be cut. This risk is assessed by evaluating several factors (Current Price, Current Yield, Current Payout Factor, Gross Margin, Operating Margin, Financial Leverage, EPS Growth).

Based on fundamentals, indicators of safety, and valuation, BT rates to be a good investment.

Company is carrying a massive amount of debt, incredibly dangerous in this economic environment

This is part of a test portfolio I made to weather the current economy.

I tried to pick a small diversified group of companies with high dividends (that I felt would not cut their dividends). I also tried to pick companies that I felt were already oversold. All the picks under this screen name are part of that portfolio.

This stock is part of my long term income strategy.

10yield.com

"You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it."

BT has managed to do what others cannot in the UK--build off their success. In fact, BT sees more multiple-service per household growth than its competitors in the UK. Folks may be shy on this stock because it's taken a beating in recent years, but I'm ready to call the worst over and see this as a stock on the rise.

european market

too much competion for a medium player

Look close

Picks from my dividend stock screen. Just trust in the fundamental criteria.

EXCELLENT TELECOM VALUE