BT Group (LSE: BT-A) shares have disappointed for years, but that hasn’t stopped investors from repeatedly trying to catch this falling knife. The telecoms giant remains among the most popular stocks traded on the FTSE 100, despite poor recent returns.
The company is a big wounded beast, forever being picked over by smaller, snappier rivals in the telecoms and broadband sector. They’re the lucky ones, not having to pour money into developing and maintaining infrastructure, as BT does.
It’s cheap but is it good value?
For a brief period, BT played the predator, shocking Sky by making a move into Premier League broadcasting. Now it’s hiving that off into a new premium sports joint venture with Warner Bros Discovery that will bring BT Sport and Eurosport UK together.
Earlier this month, BT reported a 3% drop in third-quarter revenues to £5.2bn, although adjusted earnings did rise 2%, lifting them to just over £2bn.
BT still carries £19.2bn of debt, which has climbed £1.2bn since last March. That is far higher than its current market cap of £14.26bn. Management has been battling to cut spending, and its merger of Enterprise and Global to create BT Business will deliver “material synergies” as part of the group’s wider £3bn cost-saving target. It has a long way to go, though.
Soaring energy prices and rising cost pressures have also squeezed the bottom line. Rising fibre costs help drive its annual capital expenditure bill beyond £5bn, while energy bills will knock £200m off cash flows.
Yet BT is building its full fibre connections “like fury”, in the words of CEO Philip Jansen, and investors hope this will finally deliver a rich seam of cash flows. BT has now hit 9.6 million premises with 29% already connected, which is better than expected, while its 5G mobile network now reaches 60% of the UK.
It also owns brands EE and Plusnet, which gave it the pricing power to force through price hikes of 14.4% for most customers this spring. And it has settled a bitter and lengthy industrial dispute with workers.
BT shares fall… then rise
I find it hard to get a grip on such a large, sprawling operation, but the share price tells a miserable story. BT’s stock is down 29.19% over 12 months, and 36.96% over five years. If I had invested £1,000 in its shares five years ago, I would have just £630 today.
However, I would also have enjoyed dividends, with the stock currently yielding 5.38% a year. That would have offset a good chunk of those losses, although management slashed shareholder payouts in 2020 and dropped them altogether in 2021.
Today’s yield is nicely covered 2.6 times, while BT shares look decent value as a result of its sea of troubles, trading at just seven times earnings.
Investor sentiment is improving, with the stock up 17% over the past three months, as it piggybacks on the wider FTSE 100 recovery.
I would have lost money if had bought BT stock five years ago, but I think the next five years look more promising and I will look for an entry point over the next couple of months. BT is not without risk, but it’s about time I took the plunge and bought this FTSE 100 recovery play.
