BUYS: Sky and BT--Head-to-head Media Giants side-by-side in my Portfolio

This month has been a busy one for my purchases. Two particularly notable ones, some days apart but in the same(ish) sector were Sky (formerly British Sky Broadcasting) and BT Group.

Both of these FTSE 100 giants I have been watching for some time. Originally, I had planned to put just one in my portfolio. After all, as both seem to be slowly but surely migrating towards a quad play (broadband, tv, mobile and fixed phone lines) business model they seemed to overlap.

This is still true. However, after being uncertain on which way to fall, I decided to look to putting a small  stake in both companies after some interesting shifts for both.

Sky

Price: 887.45
Shares: 62
Predicted annual dividend income:

Sky has impressed me for some time. It has had considerable growth over a prolonged period of time in Britain. Recently,the shift is clearly towards consolidation in Britain rather than growth. In Britain, as is easy to see, Sky has seemingly reached the stage where growth--although still there--is harder to get.

However, the high growth story may just shift nations. Recently, it has purchased Sky Italia and Sky Deutschland outright (sparking the rebranding). These countries have low saturation of the satellite television service provided by Sky. Hopefully, in time this will pay dividends in growth and, indeed, dividends.

Overall, Sky seemed a very good company. The predicted P/E ratios suggested a solid set of growth results for the coming year with a consensus growth rate of 7.5%:

	EPS	P/E Ratio
	63.9	13.89
High	70.12	12.66
Low	57.64	15.40
Difference (%)	20.59

What is more, this growth is predicted to continue and expand the year after with a growth rate of 12.41% predicted leaving us with these figures: 

	EPS	P/E Ratio
	71.83	12.35
High	79.49	11.16
Low	62.48	14.20
Difference (%)	25.63

Now, clearly both of these sets of predictions have very low estimates as part of them as well. However, even with these lower figures the rate of growth over the next couple of years looks promising. 

Overall, this growth rate provides us with a solid PEG ratio of 1.86 and 1 showing that we are getting growth at a pretty respectable price.

What is more, Sky had other eye-catching figures for me. With a Beta volatility figure of 0.36 it would hopefully be a solid performer even if the markets turn sour. 

And the dividends? They look equally excellent with a 34.33p  and 37.45p per share dividend payout predicted for this year and next. That provides my purchase with a potential yield of 3.87% and 4.22%. Not bad at all. And what is even better is that this should still be covered by around 1.9 times earnings so looks pretty secure going forward.

BT Group

Price: 395.78

Shares: 125

Predicted annual dividend income: 

So what about the bigger of the two? Well BT was not quite as appealing to me to begin with, hence why I invested in Sky earlier. Growth is predicted to be pretty impressive though slightly short of Sky's. For this year coming we see a consensus growth rate of 8.8%:

	EPS	P/E Ratio
	29.29	13.51
High	31.7	12.49
Low	25.57	15.48
Difference (%)	22.78

This is slightly lower the year after with a predicted 6.25%: 

	EPS	P/E Ratio
	31.12	12.72
High	36.04	10.98
Low	26.65	14.85
Difference (%)	32.58

Again, as with Sky there is quite a wide spread of predictions but overall they predict a move in the growth direction even at the worst case predictions.

What about the PEG ratio? Well again BT does not quite match Sky but is still pretty respectable for such a well-entrenched giant sitting at 1.52 and 2.04.

On the other metrics, BT again looks the poorer sibling. Its Beta is a higher--but still sold--0.76. What is more, with a dividend predicted at 12.82p and 14.7p per share for the next two years this would yield 3.24% and 3.71% respectively. Not bad, if slightly below my usual target and that of Sky. Nonetheless, with cover well over 2 times earnings and an open commitment to growing the dividend by about 15% for the next two years it may turn out the not so poorer sibling to Sky in my portfolio.

So what else did I like? Well the real clincher for me has been the confidence with which BT is looking to transform its business. First its push into the pay-tv market dominated by Sky. Brave and, so far, looking encouraging. And now, in the last few days, talk of them reentering the mobile market not through another provider but by the purchasing of a network with O2 being the frontrunner at present. All in all, this is a bold set of decisions which will hopefully pay off in the long term. 

As a long-term customer of O2 (indeed, I first started with them when it was still owned by BT itself as BT Cellnet) I know the quality that this company is. As such, if BT can purchase O2 at a discount--which, if the vying for BT's money by foreign mobile companies is true will be very possible--this will be an excellent set of assets to bring into the fold.

[Creative Commons image reproduced from Flickr user chrisgold]