The BT (LSE: BT) share price has been much on my mind lately. Yes, I should definitely get out more, but in my defence there’s a lot going on.
I can’t be the only one overthinking this stock. BT Group is a big FTSE 100 blue-chip that has suffered a tragic fall from grace. As Hamlet said: “When sorrows come, they come not single spies but in battalions.”
BT has been crushed by a whole army of problems, including falling revenues in its traditional fixed-line business, shrinking margins in a highly competitive market, and a 2017 Italian accounting scandal that cost it £530m.
FTSE 100 faller
Tight regulation, a massive debt pile and huge pension scheme deficit didn’t help. Management also spent a fortune building broadband infrastructure and splashed another £12bn on mobile network operator EE. Peak to trough, BT shares crashed by three-quarters. Lately though, its sorrows appeared to be easing.
CEO Allison Kirkby has been slashing costs and plans to reduce BT’s workforce by up to 55,000 by 2030, helped by AI. Its costly full-fibre broadband rollout has hit an “inflection point”, in her words, as capex eases while revenue streams have grown. Even the pension deficit seems to have stabilised.
Reported full-year 2024 revenue rose a mere 1% to £20.8bn. And reported profit before tax plunged 31% to £1.2bn, due to impairment of goodwill and other one-offs. Its net debt pile climbed by £600m to £19.5bn, due to scheduled pension contributions. It’s not out of the woods yet.
Dividend growth potential
Normalised free cash flow dipped 4% but was still healthy at £1.3bn. This allowed Kirkby to hike the dividend 3.9% to 8p per share. Cash flow is forecast to hit £1.5bn in 2025 and £3bn by the end of the decade. BT is forecast yield to 6.05% in 2025, and 6.19% in 2026.
Its shares got a shot in the arm on 12 August after Indian conglomerate Bharti Enterprises took a 24.5% stake. The shares jumped 8% but crashed 8% on 20 August as news broke that TV provider Sky will offer its broadband via alt-net provider CityFibre’s full-fibre network. This wiped £1bn off BT’s market cap in a day although they’re still up 20.5% over 12 months.
Poor old BT. Openreach is available at 15m premises while CityFibre has just 3.8m, but these include remote rural areas that BT is yet to reach.
It’s a harsh reminder of just how competitive this market is. As if BT needed one. Openreach lost a record 200,000 customers to rivals in the first quarter of this year. That scares me.
BT shares look decent value trading at 7.29 times earnings but clearly remain volatile. Kirkby faces a ding-dong battle and I wonder whether she has overstated the ability of AI to replace thousands of human staff. BT’s sorrows may not be over yet. I’m still fascinated by the potential here, but this latest blow has made me focus on its weakness. I’ll watch from the sidelines for now.
