3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make the FTSE 100 firm too cheap to miss?

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The BT Group (LSE: BT-A) share price proved ultra-resilient during the market volatility of last week.

In fact the FTSE 100 stock remains higher than it was at the start of the year. It is up 5.3% in 2022 while the broader Footsie has fallen half a percent.

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Yet on paper, BT’s share price still looks ultra cheap. The telecoms giant trades on a forward price-to-earnings (P/E) ratio of 8.5 times, comfortably inside bargain territory of 10 times and less. Meanwhile BT’s dividend yield sits at a healthy 4.4% for 2022.

Reasons to be cheerful

Some stocks command ultra-low valuations because of their weak earnings prospects. However, there are reasons why BT (and by extension its share price) could have a very bright future. These include:

#1: EE rebranding. BT is taking steps to rejuvenate its disappointing consumer division by rebadging products there under its EE mobile brand. This could be a masterstroke given the popularity and acclaim that EE commands. It won the uSwitch award for ‘fastest mobile network’ for the third year running in 2022.

#2: An improved sports product. Last week BT sealed the deal on a 50:50 joint venture with broadcasting colossus Warner Bros. Discovery. The deal will create a pay-TV sport powerhouse, adding events like the Olympics to BT’s portfolio that might significantly boost subscriptions.

#3: Huge infrastructure investment. BT’s heavy investment infrastructure could pay off handsomely as Britain digitises its economy. The FTSE 100 firm is spending £15bn to roll its fibre network out to 25m homes by 2025, up from a prior target of 20m. It is also taking steps to roll out 5G across the whole of the UK by 2028.

Why I worry for BT’s share price

But right now these factors aren’t enough to tempt me to buy BT shares. I’m still worried about the company and its share price for several reasons, including:

#1: The impact of Britain’s cooling economy. BT’s revenues are highly sensitive to broader economic conditions. It therefore faces extreme near-term pressure as consumer spending declines and businesses struggle to make ends meet. Britain’s economy contracted 0.1% in March after flatlining in February and rising 0.7% in January.

#2: Colossal competition. The cost of living crisis is made even worse for BT given the massive competition it faces. Customers are likely to be increasingly shopping around for a better deal in the months ahead. What’s more, BT’s Openreach division faces a fight to fend off Virgin Media O2’s entry into the infrastructure business.

#3: Massive debt levels. There’s also no getting away from the fact that BT’s balance sheet remains pretty unnerving. Net debt continues to rise and it breached £18bn in the first quarter of 2022. This casts a shadow over the company’s growth plans and its ability to keep paying big dividends to its shareholders.

For these reasons I’m happy to look past BT’s cheap share price and buy other UK shares.

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Royston Wild 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.

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 considered, so you should consider taking independent financial advice.

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