The BT share price is treading water. Should I make a move?

The BT share price is fairly close to where it was a year ago. Christopher Ruane looks at why and whether this could be a buying opportunity for his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Smiling senior white man talking through telephone while using laptop at desk.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If I had bought shares in BT (LSE: BT-A) a year ago, what would have happened to my investment? Basically, very little. Over the past 12 months, the BT share price has moved down 4%. But the shares also have a 4% dividend yield. So my total investment return at this point would be basically zero.

Could buying BT shares today be a smart move for me?

Price and value

In the words of Warren Buffett, price is what you pay and value is what you get.

So just because I can scoop up BT shares today at a similar price to what I would have paid a year ago does not necessarily make them good value. Instead, I need to look at the underlying fundamentals of the business.

Arguably they have been worsening. Revenue fell last year, as it had for several consecutive years previously. Profit fell, for the third year in a row. Although the dividend was the highest it has been since the pandemic, last year’s payout was only half that seen just three years before.

None of those things make BT sound like a great business moving in a rewarding direction. So, what is going on?

Future prospects for BT

In reality, the sluggish BT share price reflects that there are multiple businesses in one company here.

Its legacy telephony operation can be managed as a cash cow. Although the long-term demand outlook is not promising, the company might still be able to squeeze profits out of this business for decades to come. That can be seen by looking at the consumer business. Last year, its revenues declined under 1% year on year. But earnings before interest, taxation, depreciation, and amortisation (EBITDA) rose 6% while normalised free cash flow was up 28%.

Separate from the cash cow legacy business is Openreach, the subsidiary behind the backbone of the country’s internet. I think it has more promise, as it should see ongoing demand growth and be able to use its pricing power. That was not highly obvious from last year’s performance at the division, though. Revenues were up by only by 4%. Although that is not bad, it is not what I would regard as high growth. EBITDA grew 8% while normalised free cash flows fell by the same amount.

Overall, then, the BT business is a mixed bag. What I struggle with when it comes to the investment case is the lack of exciting growth. Even if Openreach can increase its revenues and profits, the total BT business has been shrinking and its collection of businesses means that may continue.

Is the BT share price attractive?

In fact, I think that helps explain why the BT share price has basically been moving sideways. There is not a strong growth story here, but the income outlook is also questionable. The dividend has shrivelled in size and if earnings keep falling, it may get even smaller in future.

That is why I do not plan to add BT to my portfolio.

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.

Christopher Ruane 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »