I reckon a sharp spike in the BT (LSE: BT.A) share price is worth examining.
Let’s look at what’s happened and if I should buy some shares.
A new dawn for BT shares?
A good set of final results that seemed to have impressed the market has sent the shares upwards.
Before I dive into the results, it’s worth noting that BT shares are still down 6% over a 12-month period. At this time last year, they were trading for 144p, compared to current levels of 132p.
Since this time last month, the shares have shot up 25% from 105p to current levels.
Breaking down the results
BT announced it had hit a £3bn cost saving target ahead of time, a year to be exact. It is now aiming to trim another £3bn of fat by 2029.
Next, the firm has been bogged down by the ongoing investment into fibre and 5G rollout. It now said it’s at what it’s calling an “inflection point”. In simpler terms, the bulk of expenditure is now behind it, and we could start seeing some positive earnings and effects of this massive undertaking.
However, it’s worth mentioning that BT confirmed that annual profits dropped 31% compared to last year. Furthermore, debt levels rose by 3%.
Finally, the business declared a dividend which is good news, especially as the company’s payouts record has been patchy at best in recent years.
To buy or not to buy?
Firstly, the current valuation is enticing, as the shares trade on a price-to-book ratio of 0.9. Any reading of less than one can be considered good value for money.
Next, a dividend yield of close to 7% is attractive. However, I must remember that dividends are never guaranteed.
Finally, it’s hard for me to ignore BT’s unrivalled brand power and reach in the UK’s telecoms ecosystem. The firm has been around for a long time and has a track record of delivering from a product and services view, as well as offering shareholder value. However, I do understand that past performance is not a guarantee of the future.
Moving to the other side of the coin, I’m worried about increased competition in the marketplace and BT’s dwindling market share. New kids on the block, such as Virgin, have made significant inroads in the telecoms sector, and seem to be rapidly wrangling away market share from the established market leader in BT.
Another issue that worries me is that BT’s debt levels are still high. During times of high interest, like now, this can be costlier to pay down. Plus, paying debt off could take precedence over rewarding shareholders.
Personally, I reckon there’s still an exciting opportunity when it comes to BT shares. An excellent track record, passive income opportunity, enticing valuation, and brand power, help my investment case.
I’d be willing to buy some shares the next time I have some investable cash.
