Is the BT share price about to take off?

With the imminent sale of BT Sports and the reduction of its debt, could the BT share price be about to fly?

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Key points

  • The sale of the BT Sport brand and a possible takeover could be positive for the BT share price
  • Competition in the telecommunications sector is fierce
  • I think now could be a smart time to buy shares

FTSE 100 telecommunications stock, BT (LSE: BT.A) is a big UK player. It operates broadband, mobile and landline networks throughout the country and has a number of recognisable brands, including EE, Plusnet and BT Sport. Recently, takeover rumours have excited investors and the imminent sale of the BT Sport brand has made the BT share price volatile. Let’s unpack these stories and assess the impact these factors might have.

A potential takeover – will the BT share price rocket?

Rumours of a takeover began in mid-December 2021, when French telecommunications billionaire Patrick Drahi increased his stake in BT from 12.1% to 18%. Before long, the market began wondering if Drahi was preparing himself for a takeover. Indeed, takeovers generally lead to a rise in this share price.

While this is a significant stake increase, UK rules prohibit a takeover from occurring until at least June 2022. Some have speculated that Drahi is using a ‘creeping control’ strategy, by slowly buying up more shares. This would ultimately give him control without the costs associated with a bid offer. Whatever the outcome, I will be keeping a close eye on the BT share price between now and June.

One much more imminent move is the sale of the BT Sport brand to US streaming company Dazn. With talks at an advanced stage, it is possible that the deal could be completed as soon as this month.

What’s more, Dazn is apparently willing to pay $800m for the brand. Some of the proceeds may be directed towards lowering BT’s not insignificant debt pile of £18.2bn. It could also improve the company’s free cash flow (FCF). For me, rather than might-not-happen takeover speculation, this sale should positively impact the BT share price. It’s a strong reason why I’ll be buying some shares at the moment.

Competition and inflation

Within the telecommunications sector, BT faces constant competition. In recent months, this has come from Virgin Media O2. While BT plans to install fibre cables to supply 25 million homes by 2025, Virgin Media O2 is already seeking investment to expand and accelerate its own fibre network. Indeed, this could mean that BT might lose the potential custom of 7 million homes where copper lines are due for upgrade.

Elsewhere, the rise in inflation has motivated BT to increase the cost of its phone and broadband services by 9.3%. This strikes me as opportunistic, given inflation will reach about 6% in the spring. Nonetheless, JP Morgan remained “optimistic” in spite of this decision, because other companies in the sector would likely soon follow BT’s price hike.

The sale of the BT Sport brand and the takeover rumours make it an exciting time to be watching the BT share price. This is a competitive sector and the company has had to work hard to stay on track. Nonetheless, I’ll be buying shares now in anticipation of higher free cash flow that could send the stock’s price upwards.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has no position in any of the shares mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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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