As the UKs premier telecoms company, BT (LSE: BT-A) (NYSE: BT.US) is one of the most defensive companies around. However, BT and the telecommunicationsindustry are changing and the company risks being left behind. With this in mind, after recent gains it could be time to sell BT.
Over the past few years, BT has started to feel the effects of increasing competition in the UK telecoms market. Competitors such as Talktalk, Sky, Virgin and even Vodafone have all started to eat away at BTs dominance over the market, eroding BTs revenue by 13% since 2009.
To try and return to growth, BT has branched out into other sectors such as pay-tv, and recently mobile, with some success. But even in these markets competition is increasing and BT no longer has a size advantage over its peers.
You see, BTs monopoly over the UKs broadband market has attracted plenty of negative attention and some of the companys peer have complained the competition commission about BTs control of the market.
As a result, BT is now under investigation by theEuropean Commission and the company has to behave itself. For example, BT is now unable to offer customers cut-price deals that would undermine competition within the industry.BT must pass any increase in costs on to customers.
Unfortunately, BTs costs are only going up. The hefty price paid by the company to winexclusive live broadcastingrights to 42 Premier League matches, along with BTs 12.5bn deal to buy mobile provider EE, will both increase group costs.
That being said, Premier League rights and the EE deal will bring more customers to BT. However, the company will have to hike its marketing spend to win over customers. Many of BTs peers are already spending heavily to acquire new customers from rivals.
And its not just increasing competition and regulation thats hurting BTs outlook. Indeed, the companys pension deficit now stands at a staggering 7bn and the deal to buy EE will add somewhere in the region of 10bn to BTs existing debt pile. BTs shareholder equity is already negative, and more debt will not improve the state of BTs balance sheet.
On top of these factors, BTs valuation looks rich. BT is currently trading at a high, growth P/E of 15, although group earnings are set to expand at a steady 5% this year. BTs dividend yield currently stands at 2.4%.
Time to sell?
So overall, with so many pressures facing BT, I believe that it could be time to sell the company there are better opportunities out there.
For example, our top analysts here at The Motley Fool have recently stumbled across a company that has the potential to driveathree-fold increase in salesin justfive years. The company in question has a proven advantage over its peers and is led by a revolutionary management team.
We believethat this is one of the market’s hidden gemsand to find out more all you need to do is readthe team’s newFREEreport,”3 Hidden Factors Behind This Daring E-commerce Play“.
This issomethingyou do not want to miss and we’re offering you the chance to find out more for free right now — justclick here.
A powerful return and even more to come?
Sometimes you have to scratch beneath the surface of the stock-market to find lesser-known companies that still have lots of room to grow
Our team of top investors have discovered what theyre calling a Fast-Growing Pharma Play with Breath-Taking Potential — the shares have already delivered a powerful return over the past few years, and they believe there could be more gains to come.
and may make savvy investors who get on-board now very rich in the years ahead.
To find out the name of one of The Motley Fools Top Small-Cap Stocks — and to discover why our analysts are so excited — click here to read our exclusive analysis for FREE!