At 185p, is the BT share price a bargain not to be missed?

With a low P/E ratio and strong financial results, could the BT share price continue its climb?

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BT Group (LSE:BT-A) is a UK-based telecommunications firm. It is a constituent of the FTSE 100 index and owns well-known brands, like EE and BT Sport. The BT share price is up 57% in the last two years, currently trading at 185p, so is now the time to add this company to my long-term portfolio? Let’s take a closer look.

Strong financial results and a low P/E ratio

The business recently published its results for the 2022 fiscal year. Profit before tax increased slightly from £1.8bn in 2021 to £1.9bn. 

Similarly, earnings per share (EPS) rose from 18.9p to 20.3p over the same time period. The company also has operating cash flow of £5.9bn, which has allowed it in recent months to expand its operations.

Despite this, BT has total debt of £21.94bn. This is something I would like to see reduced in the future.

Inflation has also been hitting companies hard over recent months. This is ironically a factor that could give BT an advantage over the market.

Investment bank Berenberg, for instance, increased its target price for BT to 225p because “inflation-linked pricing is also applied to circa 80%” of BT Openreach’s revenue.

I also suspect BT shares are currently quite cheap. By using price-to-earnings (P/E) ratios, I can better understand if a share price is under- or overvalued. BT has a forward P/E ratio of 9.25.

This is lower than British competitor Vodafone and French giant Orange. It is an indication that I might be getting a bargain if I bought shares now.

Joint venture and potential takeover

Last month, the firm announced that it had signed a 50-50 joint venture with Warner Brothers Discovery. This was the culmination of months of negotiations that will ultimately expand the BT Sport segment of the business.

BT will also gain rights to Eurosport UK and could gain £540m over four years if performance is satisfactory. However, this joint venture is currently under investigation by the Competition and Markets Authority (CMA).

The UK government is also investigating French media mogul Patrick Drahi, who increased his stake in BT from 12% to 18% in last December.

British regulations mean that Drahi is unable to perform any further actions to increase his stake until the middle of June. The Department of Business stated in late May that it is looking closer at Drahi’s holding on grounds of national security. 

While time will ultimately tell me if Drahi is looking to attempt a takeover, broker Numis has written that Drahi’s increased stake could be “bullish” for the BT share price.

Overall, I may be getting a bargain if I bought BT shares just now. What’s more, financial results are strong. However, the ongoing investigations into the joint venture and Drahi’s stake mean I’ll wait a bit longer before making a decision. Although I won’t be buying shares today, I won’t rule out a purchase in the future. 

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 recommended Vodafone. 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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