BT (LSE:BT.A) shares are up 63% over one year, but are actually only up 41% over five years. The stock has been notoriously volatile with analysts and investors alike attempting to approximate the real value of the stock. That’s been made much harder by the rollout of fibre-to-the-premises (FTTP). It’s a massive undertaking and nobody really knows what BT, as a business, is going to look like when it’s all over.
But back to the headline… £10,000 invested in BT shares five years ago would be worth £14,100 today, plus dividends. These dividends would have amounted to around £1,500 over the period. All in all, it’s not a bad return. Much stronger than any savings account could achieve.
FTTP conundrum
BT’s ambitious FTTP rollout is a classic case of high investment complexity, leaving investors facing a difficult conundrum. The company is pouring over £15bn into building a state-of-the-art fibre network, aiming to reach 25m UK premises by 2026.
This is a massive undertaking, and while it promises long-term operational savings and future-proofed infrastructure, the upfront costs are straining BT’s balance sheet. Net debt has already climbed past £20bn, exacerbated by ongoing pension liabilities and the need to upgrade mobile networks for 5G.
For investors, the core dilemma is whether this huge capital outlay will deliver returns that are strong enough to justify the risk. What’s more, while BT’s fibre build is progressing rapidly, the company’s profit after tax fell 55% last year. Revenue growth remains sluggish.
There’s also uncertainty over how many customers will actually switch to fibre. That’s made worse in a market crowded with aggressive competitors and alternative networks. Regulatory frameworks provide some reassurance, but they can’t guarantee demand or pricing power.
Although CEO Allison Kirkby is pushing a £3bn annual cost-cutting drive and hopes for lower interest rates to ease debt servicing, many investors remain cautious. The share price reflects this uncertainty, trading at what some analysts see as a steep discount, as the market waits to see if BT’s fibre gamble will pay off or simply deepen its financial woes.
Votes of confidence
BT’s recent stock gains have been driven in part by significant interest from major investors, most notably India’s Bharti Enterprises, which agreed to acquire a near-25% stake in the company.This high-profile investment has been interpreted as a strong vote of confidence in BT’s long-term value, particularly its Openreach fibre network. The Bharti deal alone lifted BT’s market value by nearly 7% in a single day.
However, I’m personally struggling to put my money behind this stock at around £1.70 per share. At £1 per share, which also appears to be something of a support level, I should have taken a chance. But sadly, that opportunity has passed me by.
Nonetheless, I’ll continue to keep a close eye on BT. If the concerns turn out to unfounded, BT could really rally.
