The BT (LSE: BT.A) share price performed better than I expected in 2021. In 2020, I thought the company was a poor investment, considering its track record of capital allocation, weak balance sheet and increasing competition in the UK telecommunications sector.
However, following a change of strategy, the company has surpassed expectations. The growth even seems to have surprised management.
Last year, management thought the business would have to seek out a joint venture partner to fund its fibre broadband across the UK. Now, the company believes it can do it itself.
I think this change in sentiment highlights how the BT share price outlook is changing. After years of poor growth, the company is finally finding its feet again. Although earnings growth is yet to materialise, the group is moving in the right direction. As it invests more in customer service and infrastructure, the enterprise should see an increase in profitability.
With that in mind, I see three potential scenarios for the BT share price in 2022.
Growth outlook
In the first and possibly best-case scenario, BT will be acquired. I think this is highly unlikely, considering the size of the company and national security implications. Still, it is worth considering, as French telecoms billionaire Patrick Draghi has acquired 18% of the business.
He has promised not to make an offer for the next six months, but considering he now owns nearly a fifth of the business, it is clear that he believes the enterprise is undervalued.
In the base-case scenario, I think the company will continue to trundle along at its current growth rate. It will continue to pursue fibre broadband rollout to most UK homes and refine its pay-TV offering. The business will also meet its aim to pay a full-year dividend of 7.5p, providing shareholders with a yield of 4.5%.
In the worst-case scenario, BT will revert to its old ways. Higher interest rates could force the company to reduce capital spending and divert the cash to cover interest costs. Management may respond by cutting costs elsewhere, impacting customer service, and erasing much of the progress made to improve service levels over the past few years.
The company may also have to backtrack on its dividend ambitions in this scenario. This would almost certainly put investors off returning to the shares.
The outlook for the BT share price
It is impossible to predict what the future holds for any stock, but I think BT is likely to meet my base-case scenario for growth next year. I believe the company will continue to move along at its current rate and meet its dividend projections.
As the stock is currently trading at a discount forward price-to-earnings (P/E) ratio of 8.6, I believe there is also scope for the shares to re-rate to a higher multiple. Unfortunately, this is not guaranteed.
Still, even without this growth, I would be happy to buy the stock for my portfolio today.
