In March, I wrote about the BT (LSE:BT.A) share price fall. At that point the stock was down 26% over the year, with that now having increased to 34%. In March, I concluded that I wanted to see some kind of catalyst before I’d be interested in buying.
Nothing has materialised since then, so it’s now time to extend the horizon to the end of this year to see where things could end up.
Higher costs putting the pressure on
The full-year results come out in a couple of weeks time, and this will likely be a key driver for the share price both in the immediate term and for the coming months.
Obviously, it’s impossible for me to predict what’s going to come out. However, I can look at the recent earnings reports to get a feel for how things are currently. The trading update from February reiterated the message from other statements in that the business in at a stage of building foundations for the future.
What this actually means is that costs are high right now, as it focuses on building and upgrading customers to full-fibre broadband and 5G networks.
This will yield benefits further down the line, but I can’t see this helping financially in 2024. So for investors that are focused on short-term results, I can’t picture them buying the stock anytime soon. From that angle, I struggle to see the share price any higher than 104p by year-end.
Close to opening the trapdoor
At 104p, the share price is close to the 52-week lows of 101p from earlier this year. The stock hasn’t traded below 100p since 2009, so this is a really key price to keep an eye on. Even though investors use a lot of fundamental analysis to make a decision on what to buy and sell, it’s true that psychological price points do influence us.
Put another way, 100p is a key level partially because it’s a round number and is three digits. If it does drop below here, it could signal a larger fall as some investors might decide to throw in the towel and have used 100p as a line in the sand.
A continuation lower
I expect the stock to finish the year below 100p, but it’s hard to pin an exact level. Based on the half-year results and guidance, revenue and profit are likely to stay roughly the same as the previous financial year.
Due to this, I’d expect a continued slow grind lower in the price through to the end of the year. Using the seven months left to run and the past performance over the previous 12 months, this would equate to a further 20% fall, putting the stock at around 83p.
There are risks to my view. The main one would be a surprise outperformance in the upcoming results. Another risk would be if benefits of the rollout come earlier than expected. This could cause some value investors to buy.
I’m happy to change my view should something unexpected happen, but for now I don’t see a compelling reason to buy BT shares.
