The BT Group (LSE: BT-A) share price has continued to trade wildly since the beginning of January. It’s still up fractionally since the turn of January 1 though, and over the past 12 months, the FTSE 100 telecoms titan is up a handsome 22%.
But despite these heady gains, the BT share price still looks cheap on paper. City analysts think earnings at the company will fall 22% in the financial year ending March 2021 before rising 4% in fiscal 2022.
This leaves BT trading on a forward price-to-earnings (P/E) ratio of around 8 times for the upcoming year. What’s more, the number crunchers think the company will soon reinstate dividend payments. And a subsequent 6% dividend yield makes BT one of the biggest yielders on the FTSE 100. But should I buy the company for my Stocks and Shares ISA today?
Staying positive on the BT share price
There are several factors that could continue to drive BT’s share price northwards. These include:
#1: Huge infrastructure investment. BT’s Openreach arm is really putting the pedal to the metal to turbocharge the number of households using its high-speed fibre. It hopes to have 20m households connected to the grid by the end of the decade, up from just above 4m today. This could deliver huge rewards as the digital revolution clicks through the gears.
#2: Getting Digital with a new division. The company has also announced plans recently to set up a Digital division that will help it improve its behind-the-scenes operations. It’s hoped as well that the new technology unit will help the Footsie firm “deliver new growth products, platforms and services” with which to take on its rivals.
#3: A strong rebound in the UK economy. Profits growth at BT is highly geared towards the fortunes of the broader domestic economy. Thus a strong economic recovery from the Covid-19 crisis could help pull the BT share price higher too.
Risky business
BT is clearly making an ambitious attempt to put the disappointing last few years behind it. But I fear that the steps the FTSE 100 company is taking won’t be enough.
Firstly, the telecoms market in the UK is ultra-competitive and BT is having to slash the prices of its services to stop other multi-services suppliers like Sky, Virgin Media and Vodafone from stealing its customers. BT’s rivals are also investing heavily in infrastructure to thwart the growth plans of Openreach.
I’m also concerned about the huge sums BT is having to spend to roll its fibre out across the country. It’s a particularly worrying problem given the huge amount of net debt the company has on its balance sheet (£17.3bn worth as of December), not to mention the fact that a huge pension deficit has to be filled.
The BT share price is cheap, sure. But its low cost reflects the huge risks that threaten to weigh on profits growth. Given that the firm’s battered balance sheet could also scupper hopes of dividends returning, I think I’d much rather buy other UK shares for my ISA today.
