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Stock of the week: BT

Written by:
Helal Miah, investment research analyst at The Share Centre, picks global telecommunications group BT as stock of the week.

The Share Centre is taking a contrarian approach in its selection this week. BT, which is to legally separate its Openreach division, recently reported it had secured the rights to broadcast Champions League and Europa League football through to 2021, which attracted an encouraging number of new subscribers.

The increase in new customers was also boosted by the firm’s successful negotiations in increasing the amount of live Premier games it shows. This strategy is in line with its recent efforts of late to focus less on its traditional fixed line phone services and more on other consumer areas such as TV, broadband and mobile.

In its latest results, the group said it expected revenue to be flat in both the current year and next year but stated that it remains committed to increasing the dividend by 10% in both years.

However, investors should appreciate that the firm’s third quarter figures were slightly better than expected with the consumer division still performing well. Furthermore, revenues rose by 32% to £6.1bn although reported profits fell 37% to £526m partly due to the Italian scandal.

BT’s acquisition of mobile network EE puts the company in a very strong market position in the UK, as it’s able to offer the ‘quad-play’ of fixed line, mobile, broadband and television services as a package to consumers. It expects to achieve considerable cost synergies and cross-selling opportunities from the deal. BT is investing to expand its operations in Asia and Latin America where it sees strong potential for further growth.

We recommend the company as a ‘buy’ for those willing to accept a higher level of risk and the good dividend yield makes it attractive for income seekers.

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