Are BT shares a good buy at 185p?

BT shares offer a fairly attractive dividend and are down considerably over four years. But is this stock right for my portfolio?

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BT (LSE:BT-A) shares are currently trading for 186p. That’s considerably up from the nadir of 137p in September 2021, but considerably down on its pre-pandemic price. The stock has been among the most traded on the FTSE 100 in recent weeks.

I’ve been considering buying BT (LSE:BT) shares for a while now. However, there are several pros and cons for this telecommunications giant. In fact, at this moment in time, I’m a little wary about adding BT to my portfolio. Here’s why.

Concerns

BT’s debt totals £21.9bn. That’s huge. In fact, it’s greater than the company’s market cap. Its last trading update highlighted that its debt, excluding lease liabilities, was £12.2bn — £0.6bn higher than in 2021. Interest payments for the year to March 31 were £755m. That’s going to negatively impact the balance sheet and profitability in the long run.

Inflation is another issue. Higher materials and labour costs will likely impact BT’s massive broadband infrastructure projects. But you’d also expect inflation to hit demand for its pay-TV subscriptions. Amid a cost of living crisis, I’d anticipate households will start cutting the things that they need least, subscriptions and phone contracts included.

To compound the issue, call centre staff agreed yesterday to strike in the face of a real-terms pay cut. If the action does take place, it will be the first national call centre workers’ strike in British history. Openreach engineers have also voted to strike. Wage inflation is the last thing British firms need right now.

This week, the company also asked the government for more time in removing Huawei equipment from its network. Removing the banned Chinese tech will cost the firm around £500m.

Prospects

BT has a strong offering across mobile, broadband and TV divisions.

The group is making EE the customer-facing brand for its mobile services. EE won the uSwitch award for ‘fastest mobile network’ for the third year running in 2022. It’s generally a popular brand and this should help BT through the current challenging economic period.

the telecoms giant has a commanding position in the pay-TV sporting market in the UK. It recently announced a partnership with Warner Bros Discovery to create a new giant network. However, the Competition and Markets Authority has also announced an investigation into the planned sports broadcasting joint venture.

With regards to broadband, in a recent update, the firm also said that it was revising its digital infrastructure targets upwards. It hopes to take fast broadband fibre to 25 million homes and businesses by the end of 2026. The original target was 20 million.

Summary

So, there are definitely reasons to invest in BT, including the 4% dividend yield. But I think there’s going to be some short-term pain amid the cost of living crisis and in the long run, I’m a little worried about the impact of all this debt on profitability.

Because of this, I’ll keep BT on my watchlist, but I won’t be adding this stock to my portfolio for the foreseeable 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 considered so you should consider taking independent financial advice.

James Fox 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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