Despite being a utility-like business, BT (LSE: BT-A) has been a disappointing performer. Just 10 months ago its shares traded above 200p. Today, they can be picked up for little more than a quid. Can BT’s share price ever go back up to 200p?
Before coming to that question, I’d like to tell you about a little-known utility business. Jersey Electricity (LSE: JEL) has delivered a modest capital gain, as well as paid a dividend, over the last 10 months. I’ve always liked this company, and it’s just announced some intriguing news.
Stable shareholder base
JEL is the sole supplier of electricity in Jersey. The government of the Channel Islands British Crown Dependency owns 62% of the shares. The other 38% – the ‘A shares’ – have traded on the London stock market since 1964.
JEL has a largely stable shareholder base of high net worth individuals and modest institutional investors. As such, a “notification of major holdings,” issued by the company on Monday, caught my eye. The last announcement of this kind was over 10 years ago!
Telecoms investor on the scene
What’s particularly interesting is the identity of the institution that’s just bought 6.57% of the A shares. Based in Helsinki, Finda Telecoms Oy is a focused investment company. According to its website (and Google translate) “Finda Telecoms Oy concentrates Finda’s telecommunications industry expertise, resources and investment targets,” and is “an active owner and developer of its investment targets.”
Like all companies, Jersey Electricity “regularly communicates with its largest shareholders.” Whether it’s communicated with Finda Telecoms Oy yet, we don’t know. Nor can I find any public statement from the telecoms investment specialist on why it’s taken a stake in an electricity company.
What I can find, though, is that Jersey Electricity appears to be sitting on a telecoms licence, issued on 2 September 2013 and ending 1 September 2023. Finda Telecoms Oy’s interest seems to add some intriguing possibilities to what I think is already a strong investment case for Jersey Electricity.
At a share price of 475p, it trades at 11.7 times trailing 12-month earnings. There’s also a solid running dividend yield of 3.4%. I think the valuation is attractive, and I rate the stock a ‘buy’.
Does BT’s share price have recovery prospects?
Several years of falling earnings. Dividends suspended. A share price thoroughly hammered. BT sits very much in the bracket of a stock that has little going for it besides the possibility of a turnaround.
Clearly, there’s substantial upside if it can stage a recovery. After all, a return to the share price of 200p seen 10 months ago would imply an investment return of 100% for buyers of BT’s stock today. But is it capable of delivering a turnaround?
The group made some progress last year under its new chief executive. And, beneath the impact of the coronavirus pandemic, management has reported a “strong operating performance” so far this year.
I think the company has a unique and valuable asset in the shape of its Openreach infrastructure arm. I also think it has a credible turnaround strategy. Despite fairly onerous debt and pension liabilities, the turnaround numbers look workable to me.
Trading at just six times what I expect to be trough earnings this year, I do see scope for BT’s share price to return to 200p in time. As such, I rate the stock a ‘long-term buy’.
G A Chester 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.