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The BT (LSE: BT.A) share price has had a dismal decade, crashing from around 350p in September 2013 to less than 120p today. That’s a drop of a third and the decline has continued with the shares down 11% in the last year.
Unsurprisingly, BT now looks dirt cheap, trading at just 6.2 times earnings. The dividend is eye-catching, with a forecast yield of 6.28% this year and 6.31% in 2025. With the current payout covered 2.5 times by earnings it looks safe, but I’m not so sure.
This one worries me
There are so many red flags surrounding this stock but in recent weeks something remarkable has happened. The share price has started climbing. It’s true! It’s up 4.6% over the last month, which is quite a surge by its recent standards.
I dream of buying bombed-out FTSE 100 stocks just before they swing back into favour. So am I staring at a once-in-a-decade buying opportunity? Well, BT is unquestionably ‘cheap’ but I’m not sure it’s good value.
First, I’d like to see a solid reason for the recent upswing. Maybe some positive earnings guidance or a jump in profits? Unfortunately, BT’s last report was issued on 27 July, almost two months ago, so there’s nothing from that quarter.
On 31 July, it appointed Allison Kirkby as its new CEO, but she isn’t slated to succeed Philip Jansen until January 2024. So we can’t pin this on her. The only news of note I’ve found is that the British government’s decision to ban China’s Huawei from developing 5G infrastructure cost BT a cool £500m. As if it wasn’t bleeding enough cash.
I’ve searched in vain for positive a positive analyst update, but the best I could find was Deutsche Bank saying that a poor summer had left BT shares trading at “not unattractive” levels. It set a price target of 145p, but still didn’t recommend buying them.
Elsewhere, UBS warned that BT is effectively borrowing more than £900m a year to fund its dividend and pension deficit payments at a time of high interest rates. Worryingly, UBS said this puts the dividend in doubt.
Too much trouble
The only reason I can see for the BT share price bounce is that the FTSE 100 is also climbing. It’s up 4.78% over the last month, marginally more than BT. A rising tide does float all boats, it seems.
I’ve seen reports that BT is preparing to repel a bid from Deutsche Telekom. It took a £5.6bn BT stake in 2015, a move CEO Tim Höttges later called his biggest mistake. He wants his money back. I can think of better ways.
He’s not the only one circling BT. Patrick Drahi, billionaire owner of French telecoms firm Altice, upped his stake from 18% to 24.5% in May, but denied he was planning a takeover. It’s good to see somebody wants BT shares.
There are some bright spots. Once BT completes its nationwide fibre rollout in 2026, capital expenditure should drop. As should staff costs as it looks to reduce its headcount by up to 55,000 by 2030.
But why take on so many problems (there are more) when the FTSE is full of cheap high yielders with less baggage? I won’t be buying BT shares.
