I’ve had mixed feelings about BT Group (LSE: BT-A) over the years. I always see things I like about it as a forward-looking technology investment. But then I keep holding back from buying BT shares due to old-fashioned financial fears.
Today, I take a look at three things that make me feel bullish about BT. Is 2022 finally the right time to buy?
1 = BT share price
One good reason to buy is the BT share price. Or, rather, the valuation that it represents today. Over the past 12 months, it looks a bit rocky:
But the longer term shows a more interesting picture. Over five years, BT shares are down 40%. They were falling before the pandemic arrived. But even with a recent recovery, the stock has not yet regained its 2019 levels.
But BT has returned to both earnings and dividend growth, though only just. The year ended March delivered a 4.3% dividend yield. And forecasts put the stock on a P/E of 9.5. On those measures, BT looks cheap.
2 = Outlook
In his full-year results comments, BT CEO Philip Jansen told us that Openreach “continues to build like fury.” I know company bosses are supposed to sound optimistic, but I do like that. It’s actually reached 7.2 million premises now, with 1.8 million connections and a “growing early take-up rate of 25%.”
BT’s 5G network, meanwhile, now covers 50% of the UK population.
On the financial front, it had a cost savings target of £2bn by the end of 2023-24. It has now extended that to £2.5bn by 2024-25.
Adjusted EBITDA gained 2% to £7.6bn. That’s not a huge jump, but against a revenue dip in a difficult year, it reflects BT’s improving efficiency. The company is targeting EBITDA of £7.9bn in the coming year.
3 = Contrarianism
My third reason is pure contrarianism. Sentiment has firmly moved away from tech stocks in 2022. Big US flyers are falling back, as the investing institutions flee to safer stocks on more conservative valuations.
The BT share price might not have fallen quite the same as the American giants, but it was already depressed anyway. And I can’t help feeling the spreading contagion is helping keep BT shares down.
Back in 1986, Warren Buffett penned some now-famous words that sum up his approach to market sentiment. He wrote: “Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The market is plainly fearful of tech shares now.
But what about…?
There’s always a “What about?” isn’t there? In the case of BT, it’s debt. And it’s a stinker. At 31 March, net debt stood at £18bn. At least it’s only a modest increase on last year’s £17.8bn. But that’s still the wrong direction.
If it wasn’t for debt, I would almost certainly buy BT shares today. And that’s all that’s holding me back. The contrarian in me is still tempted though.
