The Motley Fool

The BT share price is surging after last week’s crash: time to buy yet?

Dots over the earth connecting the world
Image source: Getty Images.

European stocks went just a little bit bonkers last Friday. Well, that’s if you define the FTSE 100 wiping £72bn worth of market value off the exchange as just a ‘little’ concerning. Still, Friday’s 3.6% loss was relatively mild considering the news that a new coronavirus variant is now making landfall in Europe. The BT Group (LSE: BT.A) share price did not seem to take the hint at all though. On the contrary, it’s up 9.5%. It seems while everyone was focused on the latest version of the virus, the market had its sights set on India.

Rumours from the east 

This morning the Economic Times reported that Reliance Industries, India’s largest company by revenue, has apparently taken an interest in BT Group. Headed by India’s leading billionaire, Mukesh Ambani, Reliance Industries is the parent company of telecoms giant Jio. Ambani’s ambition to establish a European telecoms presence was made clear by his bid in August 2021 to obtain the Dutch arm of T-Mobile. After being outbid, he has now turned to BT Group. The deal, if successful, would be the largest outgoing M&A deal involving an Indian company, ever. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

The market is pricing in the mere potential of a deal into the current BT share price. The advantages of such a marriage to both Jio and BT Group are evident straight away. As the largest mobile network operator in India and the third-largest in the world, Jio benefits from a 443 million-strong subscriber base. This comes with immense pricing power within Indian markets. As a matter of fact, Reliance shares went up 3% earlier this morning on news that Jio would hike its tariffs by 20%. BT Group is of course no slouch itself, currently commanding a leading 28% of the British telecoms market. 

To buy or not to buy BT shares? That is the question

The first thing to note is that the news fuelling BT’s share price hike is purely speculative at the moment. Neither BT Group nor Reliance has confirmed or denied the rumours. If this union materialises, I’m sure the price would rise. But I would not buy based purely on the current news. That being said, as a value investor, the basic fundamentals underlying this business do interest me.

Historically, BT Group has never been a high netting business, as it simply doesn’t have the pricing power. This is concerning given the that it currently holds 28% of the market share in the UK. Coming from a legal background, I know that competition authorities probably won’t let it get  much more. Its inability to impose pricing power with a leading market share position indicates a lack of any durable competitive advantage. A debt-to-equity of ratio of 1.96 means that BT Group is carrying an uncomfortably high level of debt on its balance sheet. If this debt was translating to better results for shareholders I’d be a bit more bullish – but it’s not. Its current return on equity of 8.8% is almost 5% below the industry average. Should Reliance come through and buy BT Group that could confer some benefits that may warrant a re-assessment. For me, though, from a value perspective, I would not buy BT Group right now.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Stephen Bhasera 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.