The BT Group (LSE:BT.A) share price slumped by a third in 2022. But the view among City brokers is that now is a good time to invest in the telecoms business.
Of the 22 analysts with ratings on BT shares, more than half (12) rate the company as a ‘buy’. Seven are neutral on the FTSE 100 stock, while two have slapped a ‘sell’ on it. That’s according to stock screener Digital Look.
Is the BT share price about to rebound? And should I buy the company for my portfolio?
2 reasons to buy
As a potential investor, I like the recent move it’s made to merge its Global and Enterprise divisions into one unit. This BT Business arm should help it develop better products for its corporate customers and could boost revenues growth.
The restructuring will also result in a further £100m in cost savings over the next few years.
I also like BT shares because of its brilliant dividend forecasts. The company is expected to pay full-year dividends of 7.8p per share its next two fiscal years (to March 2023 and 2024 respectively). So it carries a huge 6.4% yield over this period.
Critically, these estimates are also covered between 2.4 times and 2.7 times by anticipated earnings. This provides a wide margin of safety for income-hungry investors in case profits disappoint.
3 reasons to avoid
So what are the drawbacks of buying BT shares? Well, I’m worried about a possible revenues slump as the UK faces a prolonged recession. Turnover at its outgoing Global and Enterprise units dropped 2% and 5% respectively between April and September.
I’m also concerned about how BT’s plans to hike prices by 3.9% plus inflation next year could hit customer demand. The danger is high given the current cost-of-living crisis and the highly-competitive landscape. Users have many cheaper suppliers to switch to if they choose.
BT’s Openreach infrastructure division also faces growing competition from rivals including Vodafone and Liberty Global who are rolling out there own ultrafast broadband networks.
Finally, investors need to be wary too of the immense strain the firm’s fibre rollout programme is putting on the balance sheet. Net debt soared above £19bn as of the end of September.
The costs of servicing its huge debts are soaring too as interest rates rise. In light of this, a rebasing of the dividend cannot be ruled out.
The verdict on BT shares
The telecoms titan clearly poses significant risks to investors. But buyers of its stock might argue that this is reflected in rock-bottom valuation. The BT share price is now at a forward price-to-earnings (P/E) ratio of 5.4 times.
That low multiple and big dividend yield is highly attractive to me. However, there are many cheap dividend stocks I can invest in following this year’s market volatility. And many don’t face the colossal obstacles that BT does in the near term and beyond.
I’d much rather buy other UK income shares today.
