The BT Group (LSE:BT-A) share price has slumped 23% over the past year. And following fresh trading news today, it’s plummeted again, making it one of the biggest fallers across all UK shares so far this week.
The FTSE 100 firm has plenty of problems right now, as I’ll get into. Yet at current prices could it be worth a punt from long-term value investors like me?
Right now, BT shares trade on a forward price-to-earnings (P/E) ratio of 7.3 times. They also carry a market-beating 5.7% dividend yield.
A shocking update
First let’s get into the meat of those latest financials. In them, BT said that revenues fell 1% to £20.7bn during the 12 months to March, and that pre-tax profit ducked 12% over the period to £1.7bn.
These figures were roughly in line with forecast. But what shocked the market was news that the business plans to shed up to 55,000 jobs over the next seven years. That represents 42% of the company’s current workforce.
Roles across the telecoms sector are in danger in the current economic climate. Just this week, Vodafone announced it was cutting 11,000 jobs across its operations. But the scale of proposed job slashing at BT throws up the possibility of massive disruption.
Investors have also taken fright at the condition of the firm’s balance sheet. An extra £850m was added to its net debt pile last year to take the total to £18.9bn. Capital expenditure came in above expectations at £5.1bn. Normalised free cash flow dropped 5% and hit the lower end of guidance at £1.3bn.
Why I’m avoiding BT shares
On paper, BT should have a bright future as the world becomes increasingly digitalised. And it may still have. Phenomena like the rise of flexible working and growing e-commerce activity mean demand for its mobile and broadband services could increase strongly over the long term.
But the market remains concerned about the number of fires the company must fight.
Job reductions are a must to reduce those suffocating debts and improve margins. Yet the huge costs of its fibre rollout programme mean the stress on its balance sheet will remain formidable. And as I mention, such rapid streamlining could hamper its ability to function effectively.
Revenues, meanwhile, are under severe pressure due to the financial difficulties being felt by consumers and businesses. Indeed, Citizens Advice said today that a staggering 1m people had cut their broadband subscriptions over the past year.
High inflation and tough economic conditions look set to persist, too. And BT’s top and bottom lines are being battered by the high levels of competition across its infrastructure and retail operations. The launch of short-contract-specialist Rebel Internet in March adds another challenger in an already-crowded marketplace.
BT shares are cheap right now. But they are clearly cheap for good reason, at least in my opinion. I think this UK share should be avoided at all costs.
