2021 was a turning point for the BT Group (LSE:BT-A) share price. After being decimated in 2020 and delivering negative returns for several years before that, the stock finally started heading in an upward trajectory. In fact, it climbed by just over 27% during the 12-month period, far outperforming the FTSE 100 index.
So, what was behind this positive momentum? And is it enough to double the BT share price in 2022? Let’s explore.
A year of progress
After years of poor performance, the management team is finally delivering some encouraging results. The company is undergoing quite a bit of restructuring. And by 2024, £2bn of annualised savings are expected to be achieved. It’s worth noting that the original target was 2025 but was brought forward due to faster than anticipated improvements. That’s what I like to see in a company trying to turn itself around.
On the operational front, BT is doubling down on expanding its Fibre-to-the-Premises (FTTP) network. With a target of 25 million homes by 2026, the group seems to be on track, with just under six million homes equipped as of September 2021. Meanwhile, its 5G network rollout continues to make good progress as well with an additional 1.2 million 5G customers added in its latest reported quarter.
Needless to say, this is excellent news. And seeing the BT share price climb as a consequence is hardly surprising.
The BT share price has its risks
I must admit the prospect of the BT share price potentially surging this year is exciting. However, management has quite a few challenges to overcome that could impede progress.
From an operational standpoint, BT looks primed to thrive. However, on the financial side of the equation, there’s a lot more work to be done. Developing and maintaining telecommunications infrastructure is not a cheap endeavour. And with both revenue and profits falling over the last couple of years, the balance sheet has become riddled with debt.
The degree of financial leverage did improve in 2021, with around £3bn of obligations being eliminated. However, that still leaves a whopping £22.9bn to contend with. Consequently, almost a third of operating income is being gobbled by interest payments. And this may be about to get worse as interest rates are elevated by the Bank of England to tackle inflation.
Time to buy?
According to a report by CCS Insight, the number of UK 5G devices is expected to triple reaching as high as 800 million in 2022. That represents an enormous growth opportunity for BT to capitalise on. Given the total number of 5G customers has already reached over five million versus the 53,000 nearly two years ago in March 2020, the company may already be benefiting from this tailwind. And if it can continue to attract new customers for both 5G and FTTP, then I think the revenue stream could quickly start gaining significant momentum.
But is it enough for the BT share price to double in 2022? I don’t think so. Revenue growth aside, the poor state of the financials will likely impede the bottom line from matching this potential performance. Over the long term, this handicap may be removed. But for now, I think there are far better opportunities elsewhere.
Zaven Boyrazian 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.
