Are BT shares about to take off?

With increasing free cash flow, could BT shares now have significant upside potential?

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Key points

  • The company is working to sign a joint venture that would provide access to new sports channels, including Eurosport UK
  • Communications giant Patrick Drahi increased his stake in the firm from 12% to 18% in December 2021, prompting talk of a potential takeover
  • For the nine months to 31 December 2021, revenue and profit declined by 2% and 3% respectively 

An instantly recognisable FTSE 100 company, telecommunications mammoth BT (LSE:BT.A) owns brands including EE and BT Sport. With ongoing discussions regarding the sale of the BT Sport segment and rumours of a takeover bid, are the shares soon going to surge? Furthermore, I want to know if recent results show the firm to be going in the right direction. Is it time to buy shares in the business for my long-term portfolio? Let’s take a closer look.  

Recent activity and BT shares

Over the past couple of months, there has been increasing interest in BT Sport. It was reported that US streaming company DAZN was in the final stages of a deal to purchase the brand. This was estimated to be worth around $800m. In February, however, this deal fell through

BT is now in discussions with Discovery Communications for a joint sports venture. This would expand the company’s presence in the sporting world and provide access to Eurosport UK, among other channels. I will be waiting patiently to see if these two parties can strike a deal.

The news that attracted the biggest attention, however, was billionaire Patrick Drahi’s actions in December 2021. The Frenchman, who controls Altice, increased his stake in BT from just over 12% to 18%. This left many investors wondering if Drahi was attempting a slow-motion takeover. This would avoid the costs that come with a traditional bid offer.

Due to UK takeover rules, we will have to wait until the summer to see what Drahi is really up to. If he is planning a takeover, however, BT shares could rise significantly.

Lukewarm results

But I don’t buy based on takeover speculation. Instead, I want to see results. Recent results for the nine months to 31 December 2021 were mixed. Free cash flow increased by 6%. This is positive news and the firm could use this for either controlled expansion or paying down its not insignificant debt pile of £18.2bn.

On the other hand, revenue fell by 2% and profit declined by 3%. Despite this, investment bank Berenberg increased its target price from 200p to 225p. Given that BT shares are currently trading at 163p, I think there’s significant upside potential, even if the shares aren’t necessarily set to suddenly take off at the moment. 

There’s a lot going on with BT shares. While the joint venture and takeover talk is exciting, I’ll need to wait a bit longer to find out about these activities. With increasing free cash flow, the company is becoming increasingly attractive. While I won’t be buying today, I won’t rule out a purchase in the future when I have more results to analyse.

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. 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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