The BT (LSE: BT.A) share price is up 45% in the last six months and 12% in a year. However, the recent outperformance of the market by BT’s shares masks its poor longer-term returns for shareholders. Over five years the shares are down 66%.
So is BT turning a corner? Would I add the shares after the recent rise in the share price or does the elevated price just making investing even more risky?
BT share price: the plus points
A particular area of strength for BT is, I think. EE. This is part of the wider BT Group and is a strong brand and ready for 5G. EE spent £450m on 5G spectrum, which should set it up well to charge customers for faster speeds.
Also good, the dividend, which was suspended because of the pandemic, will come back — albeit at a lower level. This gives BT a chance to grow the dividend sustainably and invest in its business, which it needs to do to grow in the future.
There’s also the relationship with Ofcom, BT’s principal regulator, which seems to be improving. That’s because BT seems to be happy with the returns it can get from the regulated part of its business, especially regarding full fibre. That’s a contrast to other regulated businesses such as National Grid, which have more disputes with regulators over how much money they can make.
CEO Philip Jansen is highly regarded and has a technology background, having previously been CEO at Worldpay. On the boardroom front there will be a new chairman too, after it was announced Jan du Plessis would be standing down. A new chair may help the CEO push BT forward more quickly.
Perhaps most important to the value and turnaround investors who might most likely be interested in the BT share price, is that the shares are still cheap. Even after the recent share price rise, the shares still trade on a P/E of only around six.
Reasons to be cautious
Despite the positives, I have some concerns. The future of Openreach is uncertain, and the firm has a lot of debt, including its pension liabilities. On top of that, it’s a mature utility-like business, earning mostly regulated returns with lots of need to invest in infrastructure.
Most of all though, I’m put off by its low growth prospects. That could hold back large dividend increases in the future. I suspect it will also mean share price growth will be more sluggish going forward. The rollout of 4G also wasn’t as profitable as many mobile operators hoped. There’s a risk 5G may not translate into the expected profits for EE.
On balance, I’m not tempted to add BT to my portfolio. The BT share price has momentum and could rise further. But I don’t expect that it’ll add that much growth to my portfolio versus more innovative, smaller and nimbler companies that I can invest in. So I’ll look to identify those types of companies instead to maximise my returns.
