BT‘s (LSE:BT.A) share price has been one of the FTSE 100‘s biggest success stories of recent times. Up 28% over the last year, the telecoms giant’s outperformed the broader blue-chip index, which has risen 21% during the period.
The question is, can BT shares keep delivering spectacular gains? One especially bullish forecaster expects them to hit 300p during the next year. That’s up 45% from current levels.
It’s important to note that this prediction is at odds with broader broker opinion. The average 12-month price target among 15 analysts is 203.1p. That’s slightly below current levels of 205p. So what are the chances of BT’s share price hitting that magic 300p marker or sticking at its current level?
Cash boost
To my mind, there are four possible catalysts for an increase over the next year. One is a substantial improvement in cash flows, as its ambitious streamlining drive continues and capital expenditure starts to fall.
The business has targeted £3bn in cost savings from measures like major job cuts and moving customers to more margin-friendly 5G and fibre broadband products. It’s achieved £1.2bn so far, indicating there’s more to come.
On the capex front, BT remains on course to connect 25m premises to its full-fibre broadband by the end of this year. This won’t be the end of its expansion strategy — it’s planning to have 30m properties hooked up “by the end of the decade.” But spending is tipped to fall sharply after 2026, and this could have several major positives.
More price catalysts
For one, it should help the company cut its enormous net debt pile. As of December, it had £20.8bn on its books. Anxiety over these debts has long troubled investors, so signs it’s getting to grips with this could give BT’s share price a huge extra boost.
A jump in cash flows could also result in further dividend hikes and share buybacks that could give its shares added traction. More cash will also help the business tackle its gigantic pension deficit and give it more capital to invest for growth.
The final thing BT may need to see its share price rise 45% is an improvement in the UK economy. Revenues are still falling (down 4% in Q4), but improving conditions could potentially drive sales higher.
So what’s the catch?
The trouble is that BT faces a number of challenges to achieve a revenues recovery. And that’s not just because of the poor growth outlook in Britain, one that’s becoming murkier as the Middle East war continues.
The telecoms giant also faces significant competitive pressures that are damaging both revenues and margins. Even if economic conditions improve, it could struggle to grow profits as rivals slash prices and expand their services.
It’s also worth remembering that BT shares don’t look cheap at current levels. The firm’s forward price-to-earnings (P/E) ratio is 11.6 times, above the long-term average of 8–9. Does this make it expensive given the risks it faces? I think so, and that could limit the scope for more price gains.
To my mind, much of the good news around BT and its cash flows is baked into today’s share price. I won’t buy the company for my portfolio, but it could be worth consideration for more adventurous investors.
