The Motley Fool

My last call on BT shares was spot on. Here’s my view on the stock now

Image source: Getty Images

The last time I covered BT (LSE: BT.A) shares, I noted that, considering its recent performance, one might benefit from buying the stock. It looked to me as if the market’s view of the business was far too pessimistic.

The group’s underlying fundamentals, I noted, weren’t as bad as the share price seemed to suggest. Since that article was published, almost exactly a month ago, the stock has risen in value.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I think this could be just the start of a big move higher for BT shares. 

BT shares: Improving outlook 

This week, BT published its figures for the first half of 2020. Management also put out its projections for the company’s full-year figures.

The group now expects earnings before interest, taxation, depreciation and amortisation (EBITDA) to be between £7.3bn and £7.5bn in the current fiscal year. That’s down from £7.9bn last year. For the firm’s first-half as a whole, revenue fell 8% to £10.6bn. 

These figures aren’t too good, but they’re much better than the market was expecting. The numbers suggest the firm’s EBITDA will fall 8% year-on-year. By comparison, BT shares have fallen around 50% year-on-year. 

In my opinion, these figures don’t make much sense. Yes, the group does have some problems and revenues are under pressure. However, the company remains the largest telecommunications business in the UK, and it’s making tremendous progress in reducing costs and rolling out new technology. 

The company reduced overall costs by £352m in the first half of its fiscal year. A lower-cost base should help BT recover faster when the economic recovery really starts to gain traction. The organisation is aiming to reduce costs by £1bn a year by 2023, and £2bn by 2025. 

The company also plans to resume dividends next year. Management is initially targeting a dividend of 7.7p per share. That would give BT shares a prospective dividend yield of 7.7%. 

Risks ahead

The group’s better-than-expected financial performance is only one part of the puzzle. BT is facing several other headwinds which could weigh on growth in the years ahead. These include rising competition in the company’s core broadband and pay-tv markets, as well as elevated pension and net debt levels. 

Nonetheless, while these factors shouldn’t be ignored, it looks to me as if many of the concerns facing the business are already baked into the share price. 

What investors aren’t prepared for, in my opinion, is a better-than-expected performance from the business. As such, if the group does manage to get its house in order, I think BT shares could produce large returns from current levels.

And, in the meantime, investors will be paid to wait. The stock’s prospective 7.7% dividend yield is around double the market average, and extremely attractive in the current interest rate environment. 

Overall, I’d still buy BT shares for the long haul at current levels. 

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.