Ouch! Have I just missed a once-in-a-decade chance to buy cheap BT shares?

Harvey Jones is kicking himself for failing to buy BT shares when they were down in the dumps. Has he left it too late to buy into the recovery?

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Last time I looked at BT (LSE: BT.A) shares, I thought they seemed too cheap to resist and I was a whisker away from buying them.

I wasn’t the only one who thought the share price was heavily undervalued. JP Morgan Cazenove had just called it “ripe for a major re-rating”.

The shares were trading at just 6.75 times forward earnings while the forecast yield was a blistering 7.36%. That’s exactly the profile of the FTSE 100 stocks I’ve been buying for the last year, and with some success. I felt there was an unmissable opportunity here. So what stopped me?

FTSE 100 fear factor

A big issue is that BT has been a losing bet for years. The stock has crashed 31.71% over one year and 54.35% over five. I regularly considered catching that falling knife, and was glad I resisted. Was it really ready to recover?

Also, the company has major long-standing problems, such as a hugely expensive pension scheme, and £20bn of debt. Plus it operates in a competitive market. UBS had warned BT may be forced to slash its dividend in half, to keep it affordable.

A value trap and a declining income stream? That worried me. So what I did what did every time, and decided to keep a watching brief. Then I blinked and the share price went gangbusters.

On 16 May, BT published its full-year 2023 results. I spotted a headline saying it had reported a 31% drop in annual profits, and expected another big sell-off. So imagine my surprise (and dismay) to see the shares jump 10% instead. It’s never easy trying to second-guess the market.

CEO Allison Kirkby put the kibosh on my dividend fears, hiking it 3.9%. It looks a lot more sustainable today, with normalised free cash flow set to double from £1.5bn this year to £3bn by 2030.

Dividend income security

Kirkby said BT had reached an “inflection point” as its full fibre broadband rollout programme hit peak capex. The group also hit its £3bn cost savings target a year early and was targeting another £3bn in gross annualised cost savings by 2029. 

Who cares if pre-tax profits crashed from £1.73bn to £1.19bn? Or that group revenues rose just 1% to £20.8bn? The market didn’t. Not this time.

At time of writing, the BT share price stands at 126.5p. It’s up 20% since I decided against buying at 105.35p.

Frankly, I’d feel a bit of a chump diving into BT shares today. As if I’m following the herd. Inevitably, they’re not as cheap as they were, trading at 12.8 times forward earnings. That re-rating has partly happened. I prefer to buy undervalued shares before they recover, rather than afterwards. I remind myself that BT still has a heap of debt.

So I won’t buy the stock today. I’ll revert to my watching brief, and hope another opportunity pops up over the summer. And that I don’t miss it this time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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