BT (LSE: BT.A) shares have had a turbulent decade, but investors who took a punt on the struggling FTSE 100 telecoms giant a year ago have been handsomely rewarded.
The BT share price has jumped more than 44% over the past 12 months. Factor in a trailing dividend yield of 5.2%, and the total return approaches 50%.
Finally, it looks like the BT share price has broken loose of its shackles. And after stagnating for a while it’s suddenly on the move again, jumping 10.7% in the last month. It’s racing ahead of the FTSE 100 as a whole, which climbed just 2.4%.
Can this FTSE 100 recovery stock fly higher?
If an investor had put £10,000 into BT just one month ago, they’d have picked up 7,143 shares at around 140p each. At today’s price of 154.8p, those shares would now be worth £11,057.
BT paid a dividend of 2.4p per share on 5 February, but sadly, our investor won’t have received that. The stock went ex-dividend on 24 December. Otherwise they could have added another £171 to their total return.
Oh well, they can look forward to the next dividend, due on 10 September. So much for recent performance. As ever, the big question is what happens next?
BT has faced numerous challenges, including intense competition, regulatory scrutiny, and the enormous costs of rolling out full-fibre broadband. The company’s Openreach division is both a major asset and a potential burden, as it provides critical infrastructure but faces long-term revenue pressures.
Throw in long-standing problems such as its burdensome pension scheme and hefty net debt, and there have been good reasons not to invest in BT.
The group’s Q3 results, released on 30 January, showed adjusted EBITDA crept up just 2% year on year to £2.05bn. Revenue squeaked up a meagre 1% to £5.3bn.
Management reaffirmed its commitment to cost savings and efficiency improvements, which could provide further benefits if executed well.
Still a generous yield
BT investors weren’t thrilled. The shares fell. On 18 February, broker Citi downgraded BT from Buy to Sell, slashing its price target from 200p to just 112p. It warned that Openreach’s revenues may decline and raised doubts over BT’s ambitious target of £3bn in normalised free cash flow by the end of the decade, projecting just £2.3bn.
So I’m quite impressed the BT shares climbed at all, let alone by so much.
BT remains risky but that’s still priced in, with the price-to-earnings (P/E) ratio still low at just 8.34. While Citi’s downgrade is a blow, other brokers remain more optimistic.
The 14 analysts offering one-year share price forecasts have produced a median target of just over 183p. If correct, that’s an increase of almost 20% from today. Combined with that yield, this would give investors a total return of 25%.
It would mark another impressive year, if it happens.
With the shares rallying strongly, some investors may wonder if they’ve already missed the boat. I’m one of them. Especially with the group’s net debt of £20bn still dwarfing its £15bn market cap. Pension scheme contributions have helped drive it up.
I felt BT shares were due a bump, but I’ve missed out on the fun. I think I can find better value elsewhere on the FTSE 100 today, with fewer question marks.
