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When it comes to UK telecommunications, BT Group (LSE: BT.A) stands as one of the most recognized names in the sector. However, in the last 12 months, BT shares have fallen more than 8%, currently sitting at 117p. At that price, I think the stock could be a solid addition to my portfolio. Let’s delve into some of the reasons.
Attractive valuation
One of the most attractive aspects of BT shares is its remarkably low valuation. Currently trading at a price-to-earnings (P/E) ratio of 6, the stock is priced much lower than the FTSE 100 average, which is around 14. This disparity suggests that BT stock could be significantly undervalued, offering me an attractive entry point.
a familiar name
The company is a well-known name in the UK and its brand recognition is a valuable asset. With a legacy spanning more than a century, BT has earned a reputation for reliability and innovation in the telecommunications industry. This strong brand presence translates into a significant customer base and gives it a competitive advantage.
In addition to this, BT has made progress in expanding its 5G network coverage across the UK. BT’s 5G network, which currently covers more than 1,000 towns and cities across the country, positions it as a key player in the race for faster, more widespread connectivity.
This not only enhances its service offering but also opens up opportunities for revenue growth, particularly in the emerging 5G-driven ecosystem. As demand for high-speed Internet and low-latency connections continues to increase, the company’s significant 5G network coverage positions it well to meet these evolving consumer needs.
Macroeconomic headwinds
While BT has many strengths, it is not without challenges. The company currently has just under £20bn of debt on its balance sheet. Although UK inflation has slowed in the last 12 months, it is still putting pressure on the country’s economy. In a climate characterized by inflationary pressures and rising interest rates, servicing such a substantial debt burden could become increasingly difficult.
High inflation erodes the real value of debt and higher interest rates can lead to higher interest payments, which affects the company’s profitability and cash flow. If higher debt payments materialize, this could hurt BT’s results. What’s more, it could limit your ability to invest in new growth initiatives and adapt to changing market dynamics.
The bottom line
In my view, BT shares present a compelling investment case with several notable advantages. In price/earnings terms, the stock is priced well below the FTSE 100 average. And its strong brand recognition across the UK is undeniable. On top of this, its impressive 5G rollout has already made significant progress towards full coverage in the UK. I am willing to overlook the debt issue given its many strengths. And as such, I would consider adding it to my portfolio today.
