Why is the BT share price smashing the troubled FTSE 100?

Over the past six months, the BT Group plc (LON: BT.A) share price has been solidly beating the FTSE 100 (INDEXFTSE: UKX). Is it finally time to buy back in?

| 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.

Something remarkable has happened over the last six months — the BT Group (LSE: BT-A) share price has climbed by more than 25%. What makes it perhaps more surprising is that the FTSE 100 has been in a rout in recent months, losing 8% over the same timescale.

So have we finally seen the end of the rot that set in in 2015, and are BT shares back on the buy list now?

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

A look at the fundamentals certainly suggests the shares are cheap, with forecasts indicating a forward P/E of only 10. And the expected dividend yield now stands as high as 6%.

Fellow Fool Roland Head gave us his insights into BT recently, pointing out that he’s been convinced to buy BT shares. He suggests what many, I’m sure, are fearing — that after new boss Philip Jansen takes over from outgoing chief executive Gavin Patterson in February, there might be a dividend cut.

Dealing with debt

I think there’s a reasonable chance of that happening too, as a change of top leadership is often used as an opportunity to make changes that could otherwise be seen as an “I got it wrong” u-turn by the existing management. It’s the way new brooms sweep, as the saying goes.

And I think paying too high a dividend is something BT got wrong. I hope we’ll see more aggressive focus on tackling those huge debts and the pension fund deficit — the two things that have been weighing so heavily on the company for so long.

In fact, I think it’s plain crazy for a company to be paying big dividends while struggling with massive debts. Patterson’s turnaround strategy has been paying off, but I hope Jansen will take it up a level.

Troubled telecom

Shares in KCOM Group (LSE: KCOM) crashed a week ago after the telecoms and IT provider issued a profit warning and slashed its anticipated dividend. That’s been reinforced by Tuesday’s first-half figures.

The company’s lowered expectations include a 5% shortfall in EBITDA over previous guidance, and a goodwill impairment of £32.2m in its National Network Services segment. On top of that, EBITDA for the following year to March 2020 is now predicted to be “significantly below current market expectations.

Net debt has climbed by 60% to £108.5m, from £67.8m a year previously. But that’s been put down to a one-off working capital outflow, due in part to “the decision, in order to drive down costs, to insource a managed service arrangement with a key partner.”

Dividend cut

The interim dividend has been halved to 1p per share, with the full-year payment set to be similarly reduced from 6p to 3p. After the share price fall, mind, that would still deliver a yield of 5% to anyone buying today (assuming there’s no further cut), though I don’t think I’d be too tempted by that just yet.

I’m gratified by the firm’s readiness to make unpopular decisions for the long-term good of its shareholders, and I’m convinced that cutting its dividend is the right thing to do at the moment.

Having said that, I see it was way too soon to be considering KCOM as a recovery investment just yet.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here’s a FTSE 250 stock to buy to benefit from the construction boom!

Jabran Khan details a FTSE 250 stock that could be primed to benefit from the infrastructure and construction boom.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Is the Royal Mail share price a buying opportunity?

With a 6% dividend yield and a price-to-earnings ratio of 3, is the Royal Mail share price in buying territory?…

Read more »

Scene depicting the City of London, home of the FTSE 100
Investing Articles

3 FTSE 100 shares! Should I buy them?

I'm searching for the best FTSE 100 stocks to buy following recent market volatility. Are these blue-chip UK shares too…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Should I buy one of the cheapest shares on the FTSE 100 index?

This Fool explores one of the cheapest stocks on the FTSE 100 index by share price and decides if he…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

With trading suspended, where could the Eurasia Mining (LON:EUA) share price go next?

This morning, the EUA share price was suspended pending an announcement - so could improving sales send the share price…

Read more »

Hand holding pound notes
Investing Articles

Are the FTSE 100’s top income stocks a bargain?

The FTSE 100 is renowned for its value and dividend stocks. So, are the index's top income stocks worth a…

Read more »

Compass pointing towards 'best price'
Investing Articles

Scottish Mortgage shares have slumped 40%. Time to buy now?

Scottish Mortgage Investment Trust (LON: SMT) shares have rewarded shareholders well in recent years. I'm thinking of buying now they're…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

3 recession stocks I’d buy in a hurry

With the economic outlook getting worse, our writer highlights a trio of recession stocks he would consider buying for his…

Read more »