To me, it’s clear why the stock has started to gain favour with investors, and I think this could be just the start of a bigger rally.
BT share price growth
For years, I have been arguing that BT needs to do several things to turn itself around. Two of these were to invest more in its operations and stop chasing growth in sectors where it does not have scale.
It looks as if the company is now finally doing both of these things. BT recently announced that it is in talks with several companies about the future of its sports broadcasting arm.
BT said it was holding talks “with a number of select strategic partners,” although it’s unclear if this meant the company was looking to sell the business or acquire a strategic partner to help pick up some of the costs.
At the same time, the firm is ramping up its investment in superfast broadband. Last week, management announced that the company will create 7,000 jobs as part of an ambitious plan to connect 25m UK homes to its next-generation broadband network by 2026. Previously, the company was targeting 20m homes by 2025.
I reckon these two initiatives are significant for the group. By investing more in its network, the company should improve its relations with customers. At the same time, having a strategic partner should help BT expand its pay-tv sports business without having to shoulder the cost by itself.
For a company with over £17bn of debt, curbing spending is a top priority right now. This debt is costing the group nearly £800m a year in interest payments.
These initiatives are a good start, but there’s no denying in my mind that BT faces an uphill struggle. For example, the company had to eliminate its dividend last year, as management prioritised cash generation in the pandemic. This decision had a significant impact on the BT share price.
As we advance, the company will need cash to fund its expansion and keep debt under control. As such, it could be some time before the dividend returns. In addition, an increase in interest rates or additional regulation on the sector may also make it harder for the firm to push forward with recovery plans.
Despite these risks in challenges, it’s clear to me that BT has really turned a corner over the past 12 months. However, I don’t think this change is currently reflected in the BT share price. The stock is still trading below the level at which it began in 2020. While it is true that the company has suffered a significant decline in profitability thanks to the pandemic, analysts are already projecting a recovery.
I should note these are just projections at this stage, and there’s no guarantee BT will return to growth.
Still, I think the outlook for the stock is bright as the company continues to push ahead with its restructuring and growth initiatives. Therefore, I would buy BT for my portfolio right now.
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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.