BT Group (LSE: BT.A) shares have been climbing in 2023. But they’re still down 13% since this time last year, and down 36% in the past five years.
I see a few good reasons why I might buy BT shares this year.
Profit growth
I’ve come close to a buy a few times over the years, but on each occasion one thing or another has held me back.
Falls in revenue and profits have put me off BT in recent years. Profit before tax fell to a low of £1.8bn in 2021. But it picked up a little in 2022, even with a small dip in revenue. Are margins set to grow again?
We could now see profit growth for BT over the next few years. Forecasts suggest profit before tax could get back above £2bn in 2025. But, we might see a slight dip this year before that growth sets in again.
More key to me, it looks like margin growth really could be on now. From a recent operating margin low of 14.4% in 2021, the City expects a steady rise to more than 16% by 2025.
We’d see BT’s price-to-earnings (P/E) ratio steady at around 9.5.
Realistic dividends
In the past, I’ve seen BT’s dividends as too high to be sustained. That’s been against a background of high debt, and the pension fund deficit.
I just don’t like it when I see a company paying out a lot of cash while huge debt builds. In my book, that destroys shareholder value. And I think it shows in the BT share price slump of the past few years.
BT shares have been on a steady decline since late 2015. And they’re now down close to 70% since those days of peak excess.
But with a cut in 2020, and then a full suspension in 2021, BT rebased the dividend at half its early levels. And I think that makes a lot of sense.
It looks like the dividends should stay at this level for the next few years, with a yield of a little under 5%. That sounds fair to me.
Falling debt
My third top reason to buy BT shares is because debt is falling… well, except that it isn’t. But, I do think we could see that change in the fairly near future.
At the latest count, at the end of December 2022, BT’s net debt stood at £19.2bn. And yes, that’s a lot of money. It’s more than the total market-cap, in fact. It was a bit higher than in September, but not by much.
The reason I think this might not be a disaster is that it could just be a blip caused by the Covid years. And the later pain from then.
But BT is cutting costs. And we should see strong and rising cash flow in the next few years. When I see the first sign of that, and of a new start on debt reduction, that’s the time I might buy.
Full-year results are due on 18 May. My eyes will be peeled.
