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Is the BT share price the biggest value trap in the FTSE 100?

On paper, for those seeking FTSE 100 shares on a shoestring, BT Group (LSE: BT-A) ticks a hell of a lot of boxes.

Even though expectations of further revenue pressures feed through to predictions of a third successive annual earnings slide in the year to March 2019 with a 2% decline currently forecast by City boffins, the telecoms colossus is finally expected to get firing again with a 1% advance in fiscal 2020.

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While this modest expected bounceback is clearly not enough to blow investors’ minds, glass-half-full investors will consider predictions of a long-awaited profits increase as early confidence in BT’s recovery strategy. What’s more, a forward P/E ratio of 7.6 times, far inside the accepted bargain terrain of 10 times or below, arguably factors-in the chances that current estimates could be blown off course.

There’s a lot for dividend chasers to get stuck into as well. Although BT froze the total dividend at 15.4p per share in fiscal 2018, it is expected to push it higher again straight away, or so say the Square Mile’s experts. A reward of 15.7p is pencilled in for both fiscal 2019 and 2020, figures that result in a chubby 7.7% yield.

Revenues set to keep sinking

There’s still plenty to discourage me from splashing my own cash on the Footsie giant right now. however, and I fully expect BT to extend its shocking share price run. It has shed 32% of its market value over the past 12 months alone, and struck six-year troughs close to 200p just today.

Last week BT announced that revenues dropped 1% in the year to March 2018, to £23.7bn, with the slide worsening in the final three months of the period (quarter four sales receded 3% year-on-year to £6bn).

This result caused adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to decline 2% over the last year, to £7.5bn. And BT is not expecting the impact of intensifying competition to get better any time soon. Far from it. Instead, the firm is predicting that its underlying sales contraction will widen to 2% in the current period from 1% in the last year. And this poor top-line picture is predicted to see adjusted EBITDA range between £7.3bn and £7.4bn.

Forecasts looking frail?

BT has earmarked further colossal cost-cutting steps this month in an effort to offset the effect of sustained revenues pressure. As well as closing its historic HQ in Central London, the business plans to cut some 13,000 predominantly back-office and middle-management roles at a cost of £800m.

However, with its rivals like Sky and TalkTalk stepping up their games and the business also facing spiralling capital expenditure costs, I have little faith that any such self-help measures will have a material impact in sending BT back into earnings growth in the near future.

What’s more, BT’s swollen debt pile makes me exceptionally sceptical over its ability to maintain the dividend this year, let alone hike it as many City analysts are forecasting. Net debt jumped £695m in the last fiscal year to top £9.6bn.

All in all, I reckon there are much stronger FTSE 100 bets for both growth and income investors to snap up today than this one.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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