Are BT shares good value at 142p?

Andrew Woods explains why he thinks business expansion and recent results make BT shares bargains at their current price.

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In recent times, BT (LSE:BT.A) shares have been volatile. In the past three months, they’re down 22.7%. With growth and income potential, however, I find the current share price of 145p appealing. Let’s take a closer look.    

Recent results

The firm – a FTSE 100 telecommunications company – has posted consistent revenue figures over the past five years.

Yet in terms of profit, the business has been slightly less predictable. As the pandemic hit in 2020, pre-tax profits dipped. For the year ended March, between 2020 and 2021, this figure fell from £2.3bn to £1.8bn. 

Despite this, the company recovered in 2022 to post a pre-tax profit of £1.96bn, suggesting that it’s recovering as the world reopens and demand recovers.

In a recent quarterly update for the three months to 30 June, the firm reported that revenue grew by 1% year on year. Pre-tax profit declined though, falling by 10%. This shows how the short-term issues of wage and cost inflation are starting to impact BT’s balance sheet, although it did maintain its guidance for the full year.

The firm also has an attractive dividend policy. For the year ended March 2022, it made a total payment of 7.7p per share. At current levels, this is equivalent to a dividend yield of around 5.5%.

While this is appealing as a potential investor, I’m aware that dividend policies can change in the future. 

Meanwhile, investment bank Berenberg recently downgraded the business. It cited strong competition within fibre networks and potential threats to BT’s flagship product, Openreach, as reasons for this move.

Expansion and takeover speculation

While this is a potential concern, the company is making every effort to expand its business in a controlled manner. Throughout 2022, it has worked on a deal with Warner Bros Discovery to stream live sports. 

A deal was eventually signed, but this was subject to an investigation by the UK’s Competitions and Markets Authority (CMA), because of the potential for a monopoly in that market.

Recently, the CMA dropped its investigation. The deal could be very lucrative for BT, which could earn over £540m in performance-related payments over the next few years.

In addition, French telecommunications billionaire Patrick Drahi’s share acquisition deal was cleared by the UK’s Business Secretary after an investigation. Last December, Drahi increased his stake in BT by 50%, to 18%. Some have speculated that he may attempt a takeover of the company.   

While this is unconfirmed, any potential takeover could lead to a rise in the share price.

A lot has been happening with BT shares. The recent news stories regarding a takeover are interesting, but I’m basing any investment decision on solid results. Revenue has been consistent, and the business is expanding.

There’s fierce competition within this sector, but I think BT has what it takes to perform well in the coming years and that the shares are good value for money. I’ll be adding the firm to my portfolio soon.

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 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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