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Why I think the BT share price could be a FTSE 100 bargain buy

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It feels like forever since there was any good news about BT Group (LSE:BT.A) and its share price, which has seen its value decrease by more than 50% over the last five years. 

Having edged over 500p per share at one point in 2016, the telecoms provider has been on a downward spiral ever since, and many doubt whether BT can ever regain that valuation. The shares are currently languishing around 165p, and another earnings dip in its most recent quarterly report was far from unexpected.

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So where now for BT Group? Is there any hope for a potential recovery in the shares?

Return to growth

New CEO Philip Jansen has been adamant that BT would return to growth, particularly through the expansion of its UK base. The company’s acquisition of EE in 2016 allowed it to become the only firm with access to both landline and mobile networks, and this has yet to be fully exploited.

As far as I can see, that is an area of untapped growth potential which (with good management) should be unlocked in the years to come and could help the share price recover.

The fact that Jansen and the board have maintained BT’s generous dividend payout up to this point is an encouraging sign, as they clearly believe it is sustainable, in the short term at least.

Although much of this is due to its falling share price, a dividend yield of over 9% is surely worth serious consideration to income investors.

Now to those aforementioned quarterly results reported on 2 August. Profit before tax for the three months to the end of June was 9% lower at £642m, with adjusted EBITDA also down to £1.96bn.

However, both of these figures came in ahead of analysts’ expectations, and there was an 11% increase in capital expenditure as a result of the first rollouts of 5G networks in the UK.

Dividend cut?

The company has hinted that its dividend may be cut at some point over the next few years in order to free up funds, and that should always be an option for management, although there does not appear to be any risk of that in the near term.

Earnings have fallen every year out of the last three, and are only expected to reverse that trend by 2021, but at least that would be a step in the right direction.

Several cost-cutting and money-raising measures have been launched in order to reverse the earnings trend, including the sale of its central London office for £210m. One of the key issues facing BT is that it burns through cash, so measures to cut costs should be welcomed and taken as another sign that management is willing to do what it takes to stem the tide.

At the moment I imagine that there could be a further reduction in the share price in the short term, but with a return to growth potentially on the cards I’d buy it as a value play. I’m not always a fan of the ‘buy the dip’ mantra but I see a company with the size and status of BT as well able to stage a recovery.

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Conor Coyle 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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