I’ve been watching the BT (LSE: BT.A) share price like a hawk and six months ago decided it was finally time to swoop.
In February, I said the FTSE 100 telecoms giant’s outlook was improving after a desperate run that had seen its shares crash 75%. Restructuring efforts were bearing fruit, the huge investment in its fibre rollout was almost at an end, and it was making money. Profit before tax rose 15% to almost £1.5 in the nine months to 31 December 2023.
It still had big problems, including £20bn of debt and a burdensome pension scheme, but I said BT shares had to stop falling at some point and when they did, “the recovery may be swift”.
Risky FTSE 100 buy
My conclusion? “Investors who get in early will reap the biggest rewards.” And so it came to pass, with the stock up 37.96% since I wrote that. Over 12 months, it’s up 27.52%. Sadly, I didn’t back my instincts by buying it.
New CEO Allison Kirkby has been making her mark, driving through a cost-cutting programme that saw the group also hit its £3bn cost savings target a year early, with another £3bn targeted for 2029. Some 55,000 global jobs will go by the end of the decade. On 16 May she celebrated the group’s “inflection point”, as its full fibre broadband rollout programme hit peak capex.
Full-year 2024 results saw profits drop 31% but that was partly down to one-off factors such as impairment of goodwill and increased depreciation. Earnings grew a modest 1% to £20.8bn. Investors were happy, though, with Kirkby predicting that normalised free cash flow would double to £3bn by 2030. She also hiked the dividend by 3.9% to 8p per share.
Q1 results out on 25 July were well received despite a 2% dip in Q1 adjusted revenues to £5.1bn amid legacy managed contract declines and reduced low-margin sales activity.
Dividend growth opportunity
BT still has a long way to go but it enjoyed a huge boost on 12 August when news broke that Indian conglomerate Bharti Enterprises will become its biggest single shareholder by buying a 24.5% stake. The shares are up almost 8% this week.
Bharti is the world’s third-biggest mobile service provider by subscriber numbers and billionaire owner Sunil Bharti Mittal is clearly more confident about BT’s prospects than I’ve been. As is Mexican billionaire Carlos Slim, who bought a 3% stake for £400m in June.
Back in February, BT looked brilliant value yielding 7% and trading at just 5.5 times earning. Today’s trailing yield is 5.46% while the P/E is 7.93 times earnings. It’s not quite as compelling but still pretty tempting.
The difference is that today the outlook seems a little brighter and possibly less volatile, with an enthusiastic new investor on board.
BT still has a heap of challenges as it fights to retain its dominant position in a competitive, fast moving market. However, with the UK economy finally starting to grow, now could be the time to hop on board. It’s still risky, but that’s in the price. Time I bought it.
This post was originally published on Motley Fool
