Friday tips round-up: RSA, BT Group

8th May 2015 11:51

RSA's new chief, Stephen Hester, has done all that could be expected of him to right the ship since he came on board. He strengthened the balance sheet through a rights issue and cut costs while sharpening the underwriting arm. But falling interest rates took the wind out of the sails at just the wrong moment. They will lower income from the investment book to £380m versus £439m last year. Low yields also push investors towards insurance products, in turn weighing on premiums.The result is that earnings per share in 2016 are now expected by analysts to come in at 32p instead of the 56p they were forecasting when Hester was just arrived. Lower profits also means there will be less capital to fund the sort of dividends which investors used to enjoy. Between 2010 and 2014 the stock yielded over 6% whereas next year it is expected to provide only 3.5%. The recent rise in bond yields may prove helpful but probably not for long, says the Financial Times's Lex column.BT Group will not be broken up after the Ofcom review - although you may want to take profits, should you disagree - and there is plenty to look forward to. The company's investments in sports are paying off. After its acquisition of the Premier League rights, customers have ramped up their spending on broadband and TV, with revenues from those up by 16% in the last quarter. Once mobile operator EE is integrated BT will be able dial into its 24.5m-strong client base for growth in broadband. Little surprise then the company lifted its expectations for free cash-flow this year to £2.8bn. That means the firm is in a position to again forecast dividend growth of between 10% to 15% for the current year. In 2014 the pay-out was hiked by 14%. "With a 3% prospective yield and the benefits of EE to come, the shares still look good value, so buy," says The Times's Tempus.