The BT Group (LSE:BT.A) share price has been quite a stellar performer recently. Since the start of 2021, the stock has risen by nearly 45%. Meanwhile, over the last 12 months, it’s up by almost 70%. Considering the BT share price has been in a downward spiral since 2016, this return to growth is quite exciting for many shareholders. But what is causing it? And should I be adding this business to my portfolio?
The fall and rise of the BT share price
There are many factors involved in the historical downfall of the BT share price. But as far as I can tell, the biggest factor revolved around the management team. Over the years, the group established BT as the biggest provider of telecommunication services and infrastructure, securing a virtual monopoly in the process. However, this allowed the management to become somewhat complacent. With few competitive threats to fend off, further internal investments were wound down, and growth ambitions ground to a halt.
Unfortunately, competitive pressures soon began to rise as other network and internet providers started stealing market share away from BT. Combining the slow reaction from management with a contracting revenue stream resulted in the BT share price steadily collapsing from around 485p in early 2016 to 125p at the end of 2020. So why is the price back on the rise now?
It seems that the days of managerial neglect may be over. After openly admitting to being too slow with its expansion of fibre broadband infrastructure, the company has initiated a new investment programme worth £15bn. The goal is to equip 20m to 25m homes with internet fibre by 2026 while simultaneously expanding its 5G offerings.
And based on the most recent results, it certainly seems to be moving in the right direction. Currently, the business is adding a record 40,000 homes to its fibre network per week. Meanwhile, 160 locations across the UK have been equipped with 5G infrastructure, expanding the firm’s customer base to over 3.2m. In fact, this revived growth ambition has even lured French telecoms billionaire Patrick Drahi to buy just over 12% of the group’s outstanding shares. So, I’m not surprised to see the BT share price finally beginning to climb again.
BT is not out of the woods yet
The change in managerial mentality and long-awaited reinvestment is an encouraging sign in my eyes. And given the rising BT share price, it seems investors agree. But, after years of poor management decisions and substantial operational costs, the balance sheet is not in the best state.
As it stands, the company owes around £22.8bn in loans. This is a notable decrease compared to the £25.9bn at the end of March last year. However, when compared to the current market capitalisation of £19.5bn, BT remains highly leveraged.
The company is looking to raise additional capital by disposing of non-core assets like its BT Sports division. But suppose it is unable to find a buyer. In that case, it may once again have to rely on debt financing to raise the necessary capital to achieve its 2026 goal.
Overall, my views on BT have improved considerably over the past year. Personally, I find the recent progress made in both its fibre and 5G products very encouraging. And actually, I think the business might be at the start of an impressive turnaround. Having said that, while I am cautiously optimistic about the BT share price for the remainder of 2021, I’m still keeping it on my watchlist for now.
