BT shares: should I buy for my 2021 portfolio?

BT shares fell 31% in 2020. Royston Roche takes a deeper look following its trading update and also looks into its 5G roll out update.

| 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.

Entrepreneur on the phone.

Image source: Getty Images

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.

BT (LSE: BT.A) shares rose 25% in the past three months. They also outperformed the FTSE 100 index, which rose 12% in the same period. 

BT shares’ recent trading update

BT released its third-quarter trading update on 4 February 2021. Revenue for the nine months ended 31 December 2020, fell 7% to £16.06bn. The drop in revenue was primarily due to the negative impact of Covid-19 on the company’s consumer and enterprise units, legacy product declines, and divestments of domestic businesses in Spain, Latin America, and France.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) fell by 5% to £5.6bn. One of the reasons for the fall in EBITDA is the drop in revenue, which was partially offset by the first half sports rights rebates, savings from the company’s modernisation programme, and other cost initiatives.

The company’s profit before tax fell by 17% to £1.6bn. Normalised free cash flow also fell by 17% to £830m. Capital expenditure increased by 5% to £3.03bn, primarily due to the increased fixed and mobile network investment. 

Management expects no material impact from Brexit and the year-to-date results are in line with the estimates. The lower end of normalised free cash flow for the full fiscal year 2021 has been raised to £1.3bn. The revised range is between £1.3bn to £1.5bn; the EBITDA outlook remains the same as the earlier estimates of £7.3bn to £7.5bn. 

Strategic developments 

The company has created a new digital technology unit. It will enable the company to accelerate the digital and business transformation programmes. Management believes that digital innovation will be at the core of BT Group’s future success.

Another focus area for the company is 5G. It has 5G live in 125 towns and cities. The number of 5G-ready connections has reached 2.1 million, adding more than 900,000 in the third quarter. The company’s 4G network now covers more than 85% of the UK.

Openreach’s FTTP network has now crossed 4.1m and the company is on track to reach its target of 4.5m by March 2021. BT has also launched Halo 3+, which combines the power of the full fibre and mobile networks in one hybrid router.

BT had suspended its dividend in May 2020 in the light of the Covid-19 and to fund the five-year transformation and modernisation program. It plans to invest its annualised savings in full-fibre broadband and 5G in the UK. The company plans to restart dividends in the fiscal year 2022 at an annual rate of 7.7p per share.

Risks to consider in BT shares

The telecom industry is facing a lot of challenges due to the rapid technological changes. It also involves a lot of capital investments for building up new infrastructures. BT is also facing competition from new players who are giving better offers to grab market share.

In spite of all the challenges, I would like to buy BT shares in the next few months, as the company is still a market leader in telecom in the UK and is one of the beneficiaries of the 5G services. It is a large-cap company and lastly, the shares are available at a price-to-earnings ratio of 8.25, which I consider is a value buy.

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.

Royston Roche 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

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

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

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »