Amid the gloom of 2022, there has been a shard of light for telecoms investors in the shape of BT Group (LSE: BT-A). Shares in the telecoms giant have had a troubled few years. But since the start of 2022, the BT share price has gained 15%. That’s against a 3% drop for the FTSE 100.
What’s behind this renewed investor interest? And, more importantly, are the shares going to continue on upwards?
One difficulty in valuing BT stock stems from the nature of the company, with BT having its finger in a number of pies. As well as providing telecoms infrastructure, BT is also big in the content business.
That can be a good thing, and it doesn’t tie in quite the same long-term capital expenditure incurred by, say, building a 5G mobile network. And it’s a part of the business that can respond and adjust more quickly.
But in the past, investors have been unimpressed by the price BT has paid to source various content offerings. And it’s still a relatively small player in the market.
However, that might be about to change. In May, BT announced a tie-up with Warner Bros Discovery “to form a 50:50 joint venture company to create a new premium sport offering for the UK & Ireland“.
We’ve also just heard that BT has secured rights to European football until 2027. These developments must surely lie behind the BT share price strength in recent months. Though Openreach fibre broadband is progressing well, I don’t see that as likely to have brought about a change in investor sentiment.
An unmissable buy?
Every time I come back to the BT share price, I can’t avoid one big bottom-line issue. That’s the company’s debt and pension fund deficit. But there has been progress on that front too.
In the year to March, BT slashed the deficit by a whopping £4bn to just £1.1bn. But before we throw our hats in the air, that’s a gross pensions deficit on an IAS 19 accounting basis. On an actuarial basis, the deficit is expected to be higher, with the next triennial valuation due in 2023. Still, BT is clearly making progress.
With progress on direct debt, there’s less to cheer about. Net debt at year-end reached £18bn, up from £17.8bn a year previously. That’s just a shade short of its entire market capitalisation, which stands at £19bn.
Why I’m torn
Once again, I find myself torn when I look at BT. I don’t invest in companies if they carry lots of debt, because I see it as a major risk. It’s been a drag on the business in past years. And we’ve seen where the pandemic crash sent some big companies that were tight on liquidity — almost to the wall.
But BT shareholders don’t seem to mind debt so much, and appear more focused on the dividend. Now that’s starting to rise again, I see a good chance of the share price continuing upwards.