The past year has seen an unwelcome wrong number for shareholders in BT (LSE: BT.A). The BT share price has tumbled by 25% during that period.
What is going on – and could the current price offer me a buying opportunity?
Business performance is solid
Looking at how the business has been doing, there is no immediately obvious reason for the shares to have dropped so much.
In the first nine months of its current financial year, for example, revenue at the FTSE 100 telecoms giant grew 3% compared to the same period the prior year.
Meanwhile, adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) grew by 3%. Based on last year’s full-year numbers, the current BT share price means the business is trading on a price-to-earnings (P/E) ratio of just five.
That seems cheap.
But this a business that has seen revenues fall annually over the past few years. The same was true of post-tax earnings until last year, when they surged by 50%.
If earnings this year head back closer to where they were a couple of years ago, the P/E ratio will be higher. It would likely still be in single digits, though, which does not strike me as expensive-sounding.
Long-term outlook
But what about those revenues, falling year after year?
BT looks like a business in slow but steady decline. Adjusted revenue in its business segment was flat in the first nine months. The consumer business showed a 4% increase but that likely reflects price rises rather than strong growth in the customer base.
Openreach grew 7% but, again, that reflects higher prices. The company lost a quarter of a million broadband line customers in the first half.
I do not like the look of the BT balance sheet at all. Net debt grew in the first half to £19.7bn. That is approaching double the current market capitalisation of £10.5bn.
Legacy pension obligations could see further debt increases in future and this is the risk that most puts me off investing in BT. It has spent a lot of money funding decades-old pensions in recent years but there may still be more money required for that purpose in future.
Possible bargain?
So while the current BT share price may look cheap, I am not sure I like exactly what I would be buying if I owned shares in the company.
Not only has the one-year share price performance been dismal, so has the five-year picture. In fact the shares have lost slightly more than half their value over that period.
Yes there is a juicy dividend, which helps to compensate. At the moment the yield is 7.3%.
But the long-term dividend prospects rely on the business’s financial performance. BT is a company with high debt facing ongoing competitive pressure that has seen revenues steadily decline.
On the plus side, it still has a large customer base and well-known brand. Openreach looks like a strong asset to me that, if managed the right way, could be a future growth driver.
But despite the falling BT share price, I have no plans to invest.
