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BT group (LSE: BT-A) stocks have disappointed for years, but that hasn’t stopped investors from repeatedly trying to catch this falling knife. The telecom giant continues to be among the most popular stocks traded in the FTSE 100despite recent poor performance.
The company is a big wounded beast, always being picked on by smaller, nimbler rivals in the telecommunications and broadband sector. They are the lucky ones who don’t have to invest money in developing and maintaining the infrastructure, as BT does.
It’s cheap, but is it good value for money?
For a brief period, BT played the predator, surprising Sky by moving to the Premier League broadcast. Now it’s transferring that to a new premium sports joint venture with Discovery by Warner Bros. which will unite BT Sport and Eurosport UK.
Earlier this month, BT reported a 3% drop in third-quarter revenue to £5.2bn, although adjusted profit rose 2% to just over £2bn.
BT still has £19.2bn in debt, which is up £1.2bn since last March. That is much higher than its current market capitalization of £14.26bn. Management have been struggling to reduce spending, and their merger of Enterprise and Global to create BT Business will provide “material synergies” as part of the group’s broader £3bn cost savings target. However, it has a long way to go.
High energy prices and rising cost pressures have also reduced results. Rising fiber costs help push its annual capex bill above £5bn, while power bills will reduce cash flows by £200m.
However, BT is building its full fiber connections “like fury”, in the words of CEO Philip Jansen, and investors are hoping that this will eventually generate a lot of cash flows. BT has now reached 9.6m locals with 29% already connected, which is better than expected, while its 5G mobile network now reaches 60% of the UK.
It also owns the EE and Plusnet brands, giving it the pricing power to force price increases of 14.4% for most customers this spring. And it has settled a bitter and protracted labor dispute with the workers.
BT shares fall…then rise
It’s hard for me to control such a large and sprawling operation, but the stock price tells a miserable story. BT shares are down 29.19% in 12 months and 36.96% in five years. If you had invested £1,000 in your shares five years ago, you would have just £630 today.
However, it would have enjoyed dividends as well, with the stock currently yielding 5.38% a year. That would have offset a good chunk of those losses, though management cut shareholder payouts in 2020 and reduced them entirely in 2021.
Today’s performance is nicely hedged at 2.6 times, while BT shares look decently worth as a result of their sea of trouble, trading at just seven times earnings.
Investor sentiment is improving, with shares up 17% in the past three months as it takes advantage of the broader rally in the FTSE 100.
I would have lost money if I had bought BT shares five years ago, but I think the next five years look more promising and I will be looking for an entry point in the coming months. BT is not risk free, but it is about time you took the plunge and bought this FTSE 100 recovery set.
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