The past few weeks have been unpleasant for shareholders in BT Group (LSE: BT-A). The BT share price has plunged by a fifth over the past month. Furthermore, BT shares have almost halved over five years. So what’s gone wrong at the UK’s former telecoms monopoly?
The BT share price’s long decline
Earlier in 2022, BT shares briefly showed some strength. On 16 February, the BT share price closed at 200.9p — but then Russia invaded Ukraine eight days later, sending global stock markets south. By 8 March, this FTSE 100 share had crashed to close at 163.3p. However, this widely held stock bounced back, closing at 196.6p on 12 July. Alas, it’s been all downhill since then, as the following table shows:
| Five days | -1.7% |
| One month | -19.6% |
| Six months | -18.0% |
| 2022 YTD | -6.6% |
| One year | -11.4% |
| Five years | -46.0% |
BT shares have lost value over all six periods. Most recently, they have crashed by close to a fifth in one month. And over five years, this stock has been a complete dog — almost halving, versus a 2.4% rise in the wider FTSE 100 index. (All these figures exclude cash dividends, which would boost these returns by a few percentage points a year.)
BT has been a serial underperformer
As a veteran value investor, I’m always hunting for cheap shares in quality companies. In particular, I am often drawn to ‘fallen angels’, which are formerly successful firms whose share prices have taken a heavy beating. But I also know that BT shares have been a major disappointment for many years.
For example, at end-November 2015, the BT share price topped £5, before undergoing a multi-year collapse. And just when the stock seems to be building up a head of steam, it usually comes crashing back down to earth. So I’ve been wary of buying this Footsie share for very many years.
Is BT in the bargain bin?
When I look at BT stock today, it seems to have all the hallmarks of a value share. At the current share price of 158.25p, it trades on a price-to-earnings ratio of 12.6, slightly below the FTSE 100’s multiple of 13.1. This translates into an earnings yield of almost 8%, which covers BT’s dividend yield of 4.9% a year by over 1.6 times.
However, BT carries a hefty £12.3bn of net debt on its balance sheet, which is approaching its market value of £15.7bn. The BT pension scheme also has a large deficit (shortfall), though the group is paying extra contributions to fill this hole. Also, BT workers downed tools in a two-day strike recently, and more industrial action could be underway.
On a more positive note, French-Israeli billionaire Patrick Drahi spent roughly £3.2bn to buy an 18% stake in BT. So at least one major player sees hidden value in these perennially unloved shares. And BT’s latest quarterly results revealed its first rise in revenues for six years, plus a 2% yearly jump in adjusted earnings.
To sum up, BT shares look like a mixed bag to me. In an economic slowdown or full-blown recession, I would expect this stock to perform poorly. Then again, the group might be finally turning a corner. But I won’t buy these shares until I see more evidence of a sustained turnaround!
