Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the rot might finally have stopped.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It seemed like the BT Group (LSE: BT.A) share price was never going to stop falling.

But FY results released on 16 May changed that. And BT shares have spiked up 30% since the start of the month.

Key milestones

BT said it passed the point of peak capital expenditure on its fibre broadband rollout. It also reached £3bn cost savings a year ahead of plan.

CEO Allison Kirkby said the firm is on “a path to more than double our normalised free cash flow over the next five years“. Oh, and the dividend has been lifted again.

I think this boosts the outlook for those of us who feared BT’s rising debt, while it was spending increasing amounts of cash on building out its network.

What the City says

I must be cautious here. I’d never buy or sell a stock just because of an analyst consensus. And I’d never make a decision based on price targets.

Forecasts should always be treated with care. Those offering their thoughts on BT’s future have little more information to go on than we do.

But, I do stand by the Foolish principle of listening to all opinions on a stock, and using them to make up my own mind. And there really is a strong buy consensus out there now.

Bullish moves

Investors’ Chronicle says 90% of forecasters rate BT shares as a buy. That’s up on a year ago, when more were on the fence and had BT as a hold.

As for the price outlook, there’s a median target of 190p. That could mean a 48% hike for the BT share price, on top of the gains we’ve seen so far.

The range is very wide, though. Some bulls expect a fair bit more than that. But the lowest prediction suggests a 14% fall.

If we could watch the process of brokers setting their price targets, I imagine we might see the air full of fingers.

What it means

Forecasts put BT’s price-to-earnings (P/E) ratio at 9.3. If the share price should reach that target of 190p, it could push the P/E up to nearly 14.

That’s close to the FTSE 100 long-term average. And for a stock with long-term growth potential, I think it might be cheap.

But one thing hasn’t been in the headlines, and that’s BT’s debt. Net debt at 31 March stood at £19.5bn, or about 50% more than BT’s entire market cap. I find that scary.

High valuation

In fact, if I adjust to account for the debt, I get an equivalent P/E of about 35. And I’ve ignored the £4.8bn pension fund deficit.

Looking at another measure, the past year’s results show a return on equity (ROE) of 6.8. That’s only about half the average for the telecoms industry.

On some valuations, then, I think BT looks overpriced now.

But, a forecast dividend yield of 6.3% could make it a stock to just buy and forget. Never mind the valuation, feel the cash?

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.

Alan Oscroft 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.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »