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The BT share price has fallen: should I buy now?

White BT van in front of building
Image source: BT

The BT (LSE: BT.A) share price is up over 25% year-to-date, but it’s down nearly 12% in the past month. The share price fell 7% yesterday amid the release of financial results for the three months to 30 June 2021. It’s regained less than 2% so far on Friday. Currently trading under 175p, having peaked at over 200p this year, is now a good time to buy shares? Let’s take a look.

Why has the share price fallen?

After the announcement yesterday, some investors may not have been too impressed by BT’s performance. The results showed group revenue declined by 3%, to just over £5bn, while profit before tax fell 4%. Although not positive, these are not massive drops – and could be expected in a period when businesses are still fighting the pandemic.

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However, the £409m increase in net debt, to over £18bn, is what I suspect was one of the main reasons for the fall in the BT share price. With this said, this rise in debt is due to a 63% rise in capital expenditure – which for this period sat at £1.5bn. BT highlighted this rise as mainly due to investment in spectrum (the ability to access suitable radio frequencies). Although in the short term it may increase debt, in the long term it may improve the performance of BT.

Not all bad news

The above certainly highlights some weaknesses, but there were positives to take away. BT’s earnings before interest, tax, depreciation, and amortisation (EBITDA) rose by 3% for the period. EBITDA grew in all units, except for BT’s global division. On top of this, free cash flow was up 12%. Should these measures continue to improve, this could potentially lead to an increase in the BT share price.

I should also highlight the firm’s strong operational performance. Its Openreach network now covers 5m premises, with an aim of 25m by the end of 2026. By 2028, it aims to have a 5G network that covers 90% of the UK’s landmass. This is furthered by its partnership with Microsoft to increase innovation in its services. If all the above come to fruition, this could boost the BT share price.

To add to this, rumours persist surrounding the potential sale of BT Sport. Although subscriptions generate money, a full sale/joint venture partnership would not only raise funds but would also allow BT to streamline its operations. As such, it could focus more on its telecommunications business.

So, would I buy?

I think there are plenty of positives with BT and its strong operational performance could see it perform well in the future. The recent investment from Patrick Drahi, as looked at by my colleague Paul Summers, could also provide a boost. With that said, the large amount of debt does worry me. On top of this, being a long-term investor, I must look at performance over a stretch of time. A fall of nearly 60% in the share price over the past five years further worries me. For the time being, I won’t be buying BT.

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Charlie Keough 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.

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