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He B.T. (LSE:BT.A) share price has had a dismal decade, falling from around 350p in September 2013 to less than 120p today. That’s a drop of a third and the decline has continued with the stock falling 11% in the last year.
Unsurprisingly, BT now looks very cheap, trading at just 6.2 times earnings. The dividend is eye-catching, with a projected yield of 6.28% this year and 6.31% in 2025. With the current payout covered by 2.5 times earnings, it seems safe, but I’m not so sure.
This one worries me
There are a lot of red flags surrounding this stock, but something notable has happened in recent weeks. The stock price has started to rise. It’s true! It has risen 4.6% over the past month, which is a huge increase by recent standards.
I dream of buying bombed FTSE 100 stocks just before they gain popularity again. So, am I looking at a once-in-a-decade buying opportunity? Well, BT is certainly “cheap”, but I’m not sure it’s value for money.
First, I would like to see a solid reason for the recent rally. Maybe some positive earnings guidance or an increase in earnings? Unfortunately, BT’s last report was published on July 27, almost two months ago, so there is nothing from that quarter.
On July 31, it named Allison Kirkby as its new CEO, but she’s not scheduled to succeed Philip Jansen until January 2024. So we can’t blame this on her. The only major news I have found is that the British government’s decision to ban China’s Huawei from developing 5G infrastructure cost BT a cool £500m. As if he wasn’t bleeding enough money.
I’ve searched in vain for a positive update from an analyst, but the best I could find was German bank say that a bad summer had left BT shares trading at “it’s not unattractive” levels. He set a price target of 145p, but still did not recommend buying them.
Elsewhere, USB warned that BT is effectively borrowing more than £900m a year to fund its dividend payments and pension deficits at a time of high interest rates. The worrying thing is that UBS stated that this puts the dividend in doubt.
too much trouble
The only reason I see for the BT share price rebound is that the FTSE 100 is also rising. It is up 4.78% over the last month, slightly more than BT. Apparently a rising tide floats all boats.
I have seen reports that BT is preparing to reject an offer for Deutsche Telekom. A £5.6bn stake in BT was required in 2015, a move that chief executive Tim Höttges later called his biggest mistake. He wants his money back. I can think of better ways.
He is not the only one surrounding BT. Patrick Drahi, billionaire owner of a French telecommunications company altice, increased its stake from 18% to 24.5% in May, but denied it was planning an acquisition. It’s good to see that someone wants BT shares.
There are some bright spots. Once BT completes its nationwide fiber rollout in 2026, capex should fall. As well as personnel costs, as it seeks to reduce its workforce by up to 55,000 by 2030.
But why take on so much trouble (there’s more) when the FTSE is full of cheap high-performing companies with less baggage? I will not buy BT shares.
