The BT (LSE: BT.A) share price has broadly been holding its recent gains. So is a turnaround in the business likely to keep powering the stock higher over time?
First, it’s worth considering that BT has been one of the businesses being vocal about the need to raise its selling prices after the tax changes in the government’s recent budget.
That’s caused a bit of volatility in the share price, but I reckon the business will adapt without affecting the stock much in the end.
Progress with networks
Firms must pass cost increases on to their customers to preserve their profit margins. BT is no different and all companies affected by the tax changes are in the same boat. So I reckon selling prices will likely go up across the economy rather than company share prices and profits going down.
The second thing to consider is why BT looks like a turnaround opportunity. It all started back in May when chief executive Allison Kirkby announced the business had passed peak capital expenditure for its full-fibre broadband system rollout.
On top of that, Kirkby said the company’s cost and service transformation programme had finished a year ahead of the planned schedule.
Both those things suggest the business may end up with more spare cash ahead, which it can use to invest even more in the business for growth or to reward shareholders.
There’s also the prospect of more customers taking up the full-fibre broadband and 5G offerings leading to higher revenues and profits.
In last week’s half-year report, Kirkby was upbeat about the progress the business has been making with its full-fibre and 5G networks. However, the firm posted a 3% decline in revenue year on year because of “non-UK operations and a competitive retail environment”.
So it’s a story of two halves so far: progress rolling out networks and signing up customers versus weakness in sales overall. It’s worth reflecting that an investment in BT shares comes with risks as well as with positive potential.
Analysts are optimistic
Kirkby mentioned the risks of operating in a competitive market place. But on top of that, there’s a lot of debt on the balance sheet. BT also has a patchy multi-year record of earnings, suggesting the potential for further volatility ahead.
Nevertheless, City analysts forecast a steady immediate outcome for shareholder dividends. They expect the payment to remain broadly flat in the current trading year to March 2025 and the year following.
Meanwhile, with the share price near 140p, the forward-looking dividend yield is running at just over 5.7%. So there’s handy income to collect while shareholders wait for the turnaround in the business to build up steam.
However, on normalised earnings, analysts are less optimistic. They forecast a decline of about 17% this year and a flat outcome in the year to March 2026.
Nonetheless, the majority of analysts following the company have rated the stock as either a buy or a strong buy. So the City is keeping the faith and sees the potential for ongoing progress in the business.
