Why I'm avoiding BT Group plc like the plague
2017 has proved to be a year to forget for BT Group(LSE: BT-A). The telecoms giant has seen its share price slide by 25% amid a litany of problems. An accounting scandal in February first spooked investors, and since then fresh fears over the scale of the company's pensions black hole, concerns over the future cost of Premier League broadcasting rights, and tougher trading conditions have soured investor appetite.
Just last month it advised that underlying revenues fell 1.5% during April-September as demand for its services continued to slip. Consequently adjusted EBITDA at the business slipped 4% to £1.8bn.
So reflecting these troubles, City analysts are expecting the FTSE 100 firm to print a 5% earnings decline in the year to March 2018.
A 1% uptick is predicted for next year, but I reckon the road back to growth is littered with obstacles and that this insipid projection could itself be cut down in the months ahead. As such I reckon investors should pay little attention to BT's low forward P/E rating of 9.9 times and sit on the sidelines.
Dividends in danger?
What's more, I believe hopes of meaty dividends could also go up in smoke thanks to BT's patchy profits outlook and pressured finances.
Current estimates put the fiscal 2018 dividend at 15.5p per share, resulting in a monster 5.7% yield. And the yield moves to 5.9% for the following period thanks to an expected 16.2p payout. However, I think these predictions could be looking a little heavy.
Reports put BT's pensions black hole as high as a colossal £14bn, a nettle that it will have to grasp sooner rather than later. With the telecoms titan also facing sizeable capital expenditure in the years to come, adding extra stress to its £9.5bn net debt mountain, I think the chunky dividends of yesteryear may be a thing of the past.
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Even though earnings are expected to dip 1% in the year to February 2018, the Harry Potter publisher is still expected to lift the dividend to 7p per share from 6.7p last year. As a result, investors can bask in a very healthy 3.7% yield.
And supported by a predicted 5% profits uptick in fiscal 2019, Bloomsbury is anticipated to hike the dividend to 7.4p, nudging the yield to 3.9%.
While BT's payout predictions look a little fragile, the same cannot be said for those of Bloomsbury. Expected dividends are covered 1.8 times by earnings, a chunky readout even if it does fall below the widely-accepted security benchmark of two times. Meanwhile, the firm's excellent cash generation (net cash surged 85% during March-August, to £16.9m) gives its progressive dividend policy added support.
Bloomsbury currently trades on a forward P/E ratio of 15.1 times, which I consider exceptional value given the company's brilliant sales momentum. Revenues climbed 15% during the first half, underpinned by a 33% sales jump across its children's titles.
And with the company doubling-down on digital investment, as well as taking steps to supercharge its underperforming adult unit, I reckon investors can look forward to delicious earnings and dividend growth in the years ahead.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.