Is the BT (LSE: BT.A) share price likely to break through the 400p-barrier again and shoot higher like Rolls-Royce has done?
I think it has a decent chance of doing so.
Primed for a turnaround
Where will the stock be in five or 10 years’ time, I keep asking myself. After all, chief executive Allison Kirkby kick-started the current bull-run for the stock back in May with a momentous announcement.
Kirkby said the business had passed the peak of its capital expenditure for the full-fibre broadband system rollout. But that wasn’t all. The firm’s cost and service transformation programme had finished a year ahead of the planned schedule.
Those things likely add up to more spare cash for the company going forward. On top of that, there’s potential for extra revenue and earnings to flow in because of the company’s prior investments.
It’s the stuff of turnaround dreams! Look what happened to Rolls-Royce Holdings when the business finally found its turnaround mojo after the pandemic.
Can something similar happen with BT over the coming months and years with the share price revisiting old highs? It certainly can, however positive outcomes aren’t certain or guaranteed.
However, at least one major investor sees potential in BT. In August, the firm announced that big Indian telecoms investor Bharti Global (part of Bharti Enterprises) had reached an agreement to acquire just under 25% of BT’s shares.
A positive assessment
By any standards, that’s a big commitment and looks like a conviction investment.
At the time, chairman of Bharti Enterprises, Sunil Bharti Mittal, said: “BT has a strong portfolio of market leading brands, high-quality assets and an experienced management team with a compelling strategy…”
Mittal reckons BT’s playing a “vital” role expanding full-fibre broadband infrastructure in the UK. The company’s focus on strengthening networks, consumer growth, and optimising “every aspect” of its business places the business well, Mittal said. So well, it seems, that it’s worth backing with Bharti’s hard investment cash.
I reckon Mittal’s assessment’s encouraging. However, risks remain for BT shareholders. Perhaps the main one is that there’s no sign of increased earnings ahead… yet. City analysts actually expect a decline of about 18% for normalised earnings in the current trading year to March 2025 followed by a flat performance the year following.
Revenues too, are forecast to remain essentially flat. So a long-term investment in BT shares now requires something of a leap of faith.
Nevertheless, with the share price in the ballpark of 151p, the forward-looking dividend yield for next year is running just above 5%.
Regardless of any further rise in the share price, I reckon that level of dividend is handy to collect. Meanwhile, the firm’s improved cash availability after completing its investments may work well towards supporting shareholder dividend payments ahead.
On balance, and despite the risks, I see BT as worth further and deeper research now with a view to considering the stock for inclusion in a diversified portfolio focused on the long term. Meanwhile, the icing on the cake is its turnaround and growth potential.
