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Is the BT share price headed towards a recovery?

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The BT Tower at night
Image: BT Group

The BT (LSE: BT.A) share price looks very cheap to me at the moment. Its shares are down 13.5% in the last six months after showing signs of a recovery in the first half of 2021. Does this present a bargain buy for my portfolio or does BT pose too many risks right now?

BT share price overview

Even before the pandemic, BT shares were falling steadily. Since touching 500p in 2015, the share price fell over 61.5% to 192p in January 2020. The pandemic market crash brought the price to 98p, dangerously close to BT’s initial listing price of 87p in 1988.

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However, the BT share price is showing me strong signs of recovery. It touched 205p in June 2021. And despite some turmoil in the last couple of months, it is up 6.4% in the last week, trading at 144p at the time of writing today.

Can it carry this momentum forward?

Firstly, let us look at what’s behind the 13.5% fall since June 2021. Recent news of Sky’s potential partnership with Virgin Media O2 was seen as a direct threat to BT’s broadband reign in the UK. Virgin Media O2 has plans to upgrade its entire network to fibre to the premises (FTTP) technology, delivering possible speeds of 10Gbps. And a partnership with Sky will, no doubt, bolster its reach.

This project could rival BT’s own FTTP expansion project, Openreach, which is already well underway. This head start means the Openreach network now covers 5m users and has a target of 25m upgraded connections by the end of 2026. And this is where I see BT outstripping its competitors.

Among the broadband providers in the UK, BT has the largest market share. Its FTTP expansion could reach a large userbase faster than Virgin or Sky. I think this could become a huge selling point for BT in the next five years. The FTTP push is also supported by the government’s Gigabit project, which includes a £5bn broadband upgrade in the country. Under this, BT is well poised to be the first company to provide upgrades in schools and rural homes.

The telecom giant also extended its partnership with Nokia to provide equipment for the switch to 5G, which I think is a good move to secure BT’s future mobile user base. This is huge positive for the BT share price because I believe that a company’s future potential is far more significant than its historic performance.

Concerns

BT’s recent financial performance has been underwhelming. Group revenue went down 3% to £5bn in the first quarter (Q1) of 2021 compared to Q1 2020. Reported profit before tax declined 4% to £536m (Q1 2020: £561m). BT’s net financial debt is currently £12.5bn, up £0.8bn from March 2021 figures. This is a hurdle for my potential investment as it affects the company’s future cash flow, revenue, and dividends.

However, I think the telecom sector is headed into a huge period of growth. BT is well placed to capitalise on the 5G revolution and FTTP advancements. I think at 144p and a price-to-earnings ratio of 9.8 times, the BT share price has room for growth. I am considering an investment in BT shares today because of the exciting developments in the field and its large market share. 

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Suraj Radhakrishnan 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.

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