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The BT share price looks like a dirt-cheap bargain at today’s price! Here’s what I’d do now

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The BT Group (LSE: BT.A) share price goes from bad to worse. It’s down another 3% today, after the group posted a drop in first-quarter profit in the three months to June. Pre-tax profits fell 13% to £561m, with revenue down 7% to £5.2bn.

This was down to Covid-19, mostly, which cut BT Sports revenue as the Premier League and other major sporting events were suspended. The lockdown hit business activity in its retail outlets and mobile phone roaming revenues.

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The damage was partly offset by mitigating actions and savings from the group’s transformation programmes. Almost every FTSE 100 company has taken a coronavirus hit, but BT was vulnerable to start off with. Its shares have been in precipitous decline since early 2015, losing 80% of their value since then.

Investors who have repeatedly tried to catch this falling knife will have been frustrated. BT’s share price has kept plunging. Grabbing it today also looks risky, especially with the wider economy suffering its fastest contraction in history.

BT share price falls again

Chief executive Philip Jansen talked up a “relatively resilient” set of results, hailing the group’s “strong operating performance.” Unlike many companies, BT was able to provide an outlook for this year, predicting a 5-6% drop in adjusted revenues and, beyond that, “sustainable adjusted EBITDA growth, driven in part by the recovery from Covid-19.”

As with so many companies, much now rests on where the pandemic takes us from here. The BT share price looks a bargain, trading at just 5.6 times forecast earnings. Fears of a second wave will make investors wary, but I don’t see the government locking down the economy again. Football will continue. We’ll get used to face masks, won’t we? 

A FTSE 100 bargain for the long term

With the Premier League returning, football subscribers have been paying their usual monthly bills from 19 June. BT Sports also holds Champions League rights, and that’ll be back on our screens shortly too. The new Premier League season kicks off on 12 September.

However, another source of revenue could take a serious knock. If companies go bust, they won’t pay their broadband bills. Today, BT warned of “slower decision-making by our larger customers, and lower usage across our SME and wholesale businesses.” The BT share price is vulnerable to a severe recession.

BT has to invest around £12bn on its fibre roll-out. It also has to remove all of its Huawei kit by 2027, which will cost a few more billions. Net debt now stands at a hefty £18.2bn, up £200m from 31 March. It won’t pay dividends until at least the 2022 fiscal year.

The BT share price is trading at rock bottom levels right now, but the company also faces some mountainous challenges. Recent troubles have served to focus management minds though. It could emerge from the pandemic stronger. There’s a long way to go though. It has too many problems for me to recommend it.

As I said about Lloyds yesterday, investors who buy today must be patient. The recovery will take time.

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Harvey Jones 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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