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

BT Group shares have surged on rumours of a potential acquisition but would this Fool be smart to buy under current conditions?

| 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.

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

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!

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.

More on Investing Articles

Tired woman sleeping on London underground
Investing Articles

5 steps to monthly passive income streams of £500

Aiming for regular passive income streams, our writer walks through five key steps he would take.

Read more »

Business people shaking hands
Investing Articles

Director dealings: HSBC, National Grid, Taylor Wimpey

Director dealings can indicate whether a company's doing well. So, here are this week's director dealings from three of the…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

2 lesser-known stocks with 10% dividend yields!

With sky-high inflation, sizeable dividend yields can help my portfolio grow. These two stocks are paying 10% on average.

Read more »

Businessman pulling out wooden brick from toppling stack
Investing Articles

Is the Woodbois share price a bargain – or a value trap?

The Woodbois share price has seen big swings recently. Our writer considers why and explains his response.

Read more »

Electric cars charging in station
Investing Articles

Here’s why NIO stock is my top EV pick!

NIO stock had been one of the worst-performing shares over the last year, but it appears to have bottomed out.…

Read more »

Risk reward ratio / risk management concept
Investing Articles

The JD Wetherspoon share price has fallen 45% — should I load up?

The JD Wetherspoon share price has shed almost half its value in the past year. Should our writer buy another…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Down 50%, is the Scottish Mortgage share price a bargain in plain sight?

The Scottish Mortgage share price has lost half its value in recent months. Is it now a bargain for our…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

A cheap UK share for the cybersecurity boom!

I'm backing this UK share after its share price collapsed this week. In fact, I've recently added this cybersecurity stock…

Read more »