Can BT Group plc’s Share Price Return To 1,513p?

Will BT Group plc (LON: BT.A) be able to return to its previous highs?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.

Today I’m looking at BT (LSE: BT-A) (NYSE: BT.US) to ascertain if its share price can return to 1,513p.

Initial catalyst

Of course, be we can establish whether or not BT can return to 1,513p, we need to figure out what caused the company’s share price to reach this level in the first place. It would appear that BT reached this high on the last trading day of 1999, amid a wider FTSE 100 rally as the market was swept up in the technology bubble.

Indeed, it appears that investors were prepared to pay a premium for BT’s shares as they believed that the company would play a key part in the internet revolution. In particular, at a price of 1,513p BT shares were trading at a historic P/E of 33. 

However, after reaching 1,513p, within the space of three years BT’s shares had fallen to a low of 157p, following what was then record breaking £5.9 billion rights issue. What’s more, due to the size of this rights issue, BT’s management had to offer the new shares at a deep discount of 49% below the company’s share price on the day the cash-call was announced.

But can BT return to its former glory?

Since the turn of the century, the UK telecommunications industry has changed significantly and BT no longer dominates the industry, like the company did when it reached 1,513p. In addition, as a result of the company’s rights issue, BT’s earnings per share figure, a key metric for placing a value on the company’s shares, was cut in half.

Sadly, a combination of these two factors has weighed on both BT’s share price and profitability during the past decade. For example, BT’s profit is still around 30% lower than it was during 1999 and the company’s earnings per share are 50% below their 1999 peak. In particular, BT reported earnings per share of 25p for 2013 on net income of £2 billion, whereas for full-year 1999, the company’s net income was £3 billion, which gave an earnings per share figure of approximately 47p. 

Overall, this implies that BT would have to double its earnings per share in order to justify a return to 1,513p. Although not impossible in the long term, this looks highly unlikely in the short term.

Still, BT’s drive into the pay-TV market has been a lifesaving move for the company and the company’s net income has doubled during the last three years — impressive but not enough to justify a 1,513p price tag.

Foolish summary

So overall, I feel that BT cannot return to 1,513p. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article. 

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »