2014 has been fairly disappointing for investors in BT (LSE: BT-A) (NYSE: BT.US). Thats because, after a superb 2013 when the companys share price rose by an incredible 62%, it has fallen by 2% in the current year.
Of course, this is partly due to a weak wider market, with the FTSE 100 being down 3.5% year-to-date. However, another reason for weak sentiment towards BT is concern surrounding Skys (LSE: BSY) takeover of Sky Italia and Sky Deutschland, which was today given the green light by the UK companys shareholders.
However, with sentiment in BT being weak, now could prove to be the perfect time to buy a slice of the company.
Over the last couple of years, BT has shifted its strategy significantly. Not content with being a successful telecoms company, BT is now attempting to become a fully fledged pay-tv player and, as such, is going head-to-head with Sky.
Clearly, this is a highly lucrative marketplace and has the potential to boost BTs sales and profitability in the long run. The problem, though, is that BT is being made to pay a very high price to enter into the world of sports rights, which is a key differentiator between the different pay-tv companies.
For example, BT recently paid a whopping 900 million to be able to exclusively screen live Champions League football matches over the next three years. While expensive, content such as this should help to improve brand loyalty and attract a new and highly beneficial type of customer to the company.
Of course, such large spending inevitably hurts the companys bottom line in the short run. Hence why BT is expected to increase earnings by just 3% in the current year. However, the move into pay-tv is a long-term strategy and could start to pay off as soon as next year, when BTs bottom line is due to rise by 8%. This could be the start of a more prosperous period for the company especially as it learns how to successfully monetise BT Sport.
Clearly, Skys takeover of Sky Italia and Sky Deutschland makes it a bigger and more powerful entity. Its thinking is that bigger means more spending power and this should be able to help it see off BT in the long run.
From this perspective, then, BTs future may appear uncertain.
However, it has the financial firepower to take on the new Sky and, to this point, has been relatively successful at winning lucrative sports rights. While sentiment in BT may weaken slightly on the Sky takeover deal, this could prove to be a perfect time to buy BT. Thats not only because it has the potential to eat into Skys market share, but also because it has a relatively attractive valuation (its price to earnings ratio is just 12.8) and offers a well-covered dividend yield of 3.4%.
So, with growth potential, an attractive valuation and strong income prospects, good news for Sky could mean a perfect time to add BT to Foolish portfolios.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended British Sky Broadcasting. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.