Sage Investment Club

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It is hard to imagine that BT (LSE: BT-A) shares brushed the 500p mark almost seven years ago in November 2015. Investors who bought the FTSE 100 telecoms giant at that peak have suffered losses, as today the shares trade at a meagre 140p.

BT shares have lost almost three-quarters of their value in that time and the decline has continued this year. They are down 10.64% over 12 months. 

Investors fled as revenues went into a steady decline, from £23.72bn in 2018 to just £20,850 in the year to 31 March. Earnings per share slid from 27.90p to 20.30p over the same period, although they picked up slightly last year.

BT shares have done so badly

At the same time, BT’s net debt has continued to grow. It hit a thumping £18bn at the end of March, up another £200m over the year. That’s bigger than the group’s market cap of £13.94bn, even after accounting for cash and current investment balances of £3.5bn.

Despite all the bad news, investors continue to hover and hope. A FTSE 100 value trap can be incredibly hard to resist, but I have resisted thus far. 

Yet I think that the buying opportunity could soon be upon us. Some investors may be pinning their hopes on takeover talk, after French billionaire and Altice owner Patrick Drahi increased his stake in BT from 12.1% to 18% last December. 

He is now the group’s biggest investor but personally, I never buy a stock on takeover talk. All too often, it comes to nought, which meant I bought at an inflated, rumour-fuelled share price.

BT’s fundamentals are starting to look better. Management anticipates adjusted EBITDA earnings of at least £7.9bn in 2023, up slightly from £7.6bn in 2022. Normalised free cash flow should range between £1.3bn and £1.5bn. 

BT’s full-year dividend has been reinstated at 7.7p a share. The stock currently yields 5.40%, covered 2.6 times by earnings.

This FTSE 100 stock has a tempting yield

Openreach continues to “build like fury” in CEO Philip Jansen’s words, passing 7.2m premises with 1.8m connections. BT’s 5G network covers more than half the UK population. Management also reports low Ofcom complaints, while customer churn is at “near record lows”.

BT Group has agreed a new premium sports joint venture Warner Bros Discovery, that will bring BT Sport and Eurosport UK together. It has also agreed a new longer-term reciprocal channel supply deal with Sky, to run beyond 2030.

BT still has challenges, including unrest among its workforce. It must also fund hefty capital expenditure on its fibre infrastructure and mobile networks, which rose 25% last year to £5.3bn. This year, it will spend another £4.8bn. 

Openreach may also face a longer-term threat to its market dominance, amid a rise in alternative fibre networks.

Yet trading at 7.03 times earnings, much of this is reflected in the price. I am now keeping a very close watch on BT shares, and may add them to my portfolio when I have a little cash to spare in October. I’ve waited long enough.

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