Is the BT share price a great FTSE 100 bargain or is this a stock to avoid?

New billionaire shareholders have lifted the BT share price recently, but competition risks are heating up for the FTSE 100 telecoms stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

When a FTSE 100 company attracts investment from high-profile billionaires, it’s worth taking notice. That’s exactly what BT Group (LSE:BT.A) has done in recent months, causing the share price to skyrocket.

In June, Mexican business magnate Carlos Slim acquired a 3% stake in the British telecoms giant. This month, Indian industrialist Sunil Bharti Mittal’s conglomerate agreed to buy 24.5% of BT’s shares. These are impressive votes of confidence from veteran investors.

However, there’s a fly in the ointment. Sky — a major BT client — has just reached a deal with broadband rival CityFibre. This has sparked fresh jitters among BT shareholders and wiped £1bn off the group’s market cap.

Should you invest £1,000 in Barratt Developments right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?

See the 6 stocks

Should I join the industry stalwarts scooping up BT shares, or steer clear? Let’s explore.

Share price

It’s worth putting the recent BT share price gains in context. Although the stock has surged in recent months, it’s delivered a negative return over five years (excluding dividends).

Created with Highcharts 11.4.3Bt Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL20 Aug 201920 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Past performance doesn’t guarantee future returns, but it’s fair to say the company’s been a poor investment for long-term shareholders compared to many other FTSE 100 stocks.

Cash flow

However, there are signs the group could be turning a corner. For a mature business like BT, free cash flow is an important marker of financial strength, as it underpins dividend payouts.

In this regard, BT’s guidance looks promising. The board anticipates normalised free cash flow will improve from £1.3bn to £1.5bn this year, but it’s the long-term target that catches my eye. This figure could double to £3bn by 2030.

Moreover, BT shares look cheap measured against current cash flow. The price-to-cash flow (P/CF) ratio of around 2.5 is well below the five-year average.

Created at TradingView

Cost cutting

Nevertheless, BT’s balance sheet concerns me. Net debt stands at nearly £20bn, threatening dividend sustainability and potentially limiting future share price growth.

On the bright side, the group has suggested it’s past peak investment in rolling out its UK full-fibre broadband network. Lower capital costs should help BT get net debt under control.

Yet, this won’t be enough on its own. The group plans to cut its global headcount by up to 42% by the end of the decade, with many jobs being replaced by artificial intelligence (AI).

Streamlining measures are often well-received by City analysts, but I’m concerned by the scale of the planned restructuring and the adverse impact it might have on service quality.

After all, BT’s number of employees has declined every year since 2019. There’s a risk AI tools may not be the silver bullet the company hopes.

Created at TradingView

Competition

Finally, the impact of Sky’s latest deal can’t be understated. Currently, the TV company uses BT’s Openreach network as the host for all of its 5.7m broadband customers.

Considering BT lost almost 200,000 Openreach customers in the latest quarter, the agreement has come at an unwelcome time.

Intensifying competition risks are a key consideration for potential investors.

Should I join the telecoms tycoons?

A 6% dividend yield and a forward price-to-earnings (P/E) ratio below nine might boost BT’s investment appeal, but they’re not enough to persuade me to invest.

The other side of the coin is a debt-heavy balance sheet and rising competition. For those reasons, I’ll be looking for other FTSE 100 shares to buy instead.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Charlie Carman 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

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »