BT Group (LSE: BT.A) shares continue to take me by surprise. They look pretty resilient today and have even shrugged off the Middle East conflict, so far. Can this continue?
The FTSE 100 telecoms stock spent years battling intense competition while trying to streamline its sprawling structure. Its costly foray into sports broadcasting looked like an unnecessary distraction. Add in a huge pension scheme, towering net debt, and the billions it had to pour into rolling out the UK’s full-fibre network, and it looked like one to avoid. A massive rebuilding job was required, and it got it. Its recovery has accelerated under chief executive Allison Kirkby, appointed in February 2024.
FTSE 100 recovery hero
A couple of years ago, I finally started writing more positively about BT. In fact, I seriously considered adding the shares to my Self-Invested Personal Pension (SIPP). They looked incredibly cheap, trading on a price-to-earnings ratio of five or six, while yielding a bumper 7%, or so. Sadly, I didn’t buy it, still scarred by those years of muddle.
There’s a lot less muddle now. In May 2024, Kirkby said BT had reached an “inflection point”, as the costs of building Openreach had peaked and revenues start to flow. By 2027, full fibre will have been rolled out to more than 90% of UK properties.
I hadn’t checked the shares since the Iran crisis began, and wasn’t sure what to expect. They’re up 4.5% over the last month and 30% over one year. Investors who bought when I sadly didn’t will be very happy. The BT share price is up an impressive 102% over two years. That would have turned £15k into roughly £30,300. Reinvested dividends have added another £1,300, or so.
Dividends and growth
That’s a strong return, but also history. So what about today? Inevitably, BT shares are more expensive than they were, with a P/E of 11.6. It’s not excessive though. The trailing yield has fallen to 3.85%, hardly surprising after such a strong run for the share price.
Q3 results (5 February) were mixed. Revenue fell 4% to £5bn, while pre-tax profit dropped to £183m, mostlyl due to a £214m loss from the TNT Sports joint venture with Warner Bros Discovery. Cost-cutting offset some of the pressure and Openreach continued to grow strongly, with 571,000 net adds, up 21% year-on-year. Total fibre connections hit 8.2m.
Net debt still sits at a massive £20bn though, pretty much in line with its market-cap. Openreach also lost 210,000 broadband lines to rivals in the quarter. Total annual losses are expected to be around 850,000. Telecoms is a fiercely competitive market, and alt-net rivals are snapping at its heels.
If the cost-of-living crisis returns, more households may switch as they redouble efforts to save money. BT has successfully cut its energy costs lately, but an oil price shock could reverse that.
So is BT a defensive stock? That may be pushing it. But it does provide essential services that people rely on every day. I think it’s worth considering for long-term investors, but I wouldn’t expect a repeat of the last two years. Alternatively, investors might like to seek out FTSE 100 shares that have been battered by recent volatility, and get in at an early stage of their recovery.
