So far, BT (LSE: BT.A) shares have done well in 2023. The telecoms giant has seen its share price move from around 112p at the beginning of January to around 153p today.
But to put that move in context, the stock is more or less unchanged over the past 12 months. So the price has been volatile.
And there’s still a long way to go for the share price to climb back up to the lofty heights of 490p, last seen around November 2015.
Indeed, long-term shareholders will likely still be deep underwater despite the recent strength of the stock.
Is it cheap, or what?
But given that BT has fallen so far in the past few years, perhaps there’s still value present. And maybe the stock is a bargain.
It looks cheap on some of the numbers. For example, the forward-looking price-to-earnings multiple is running at just over eight for the current trading year to March 2024. And the anticipated dividend yield is around 5%.
But valuation multiples start to look less attractive when factoring in the company’s big debt pile.
And after a decent rise in earnings during the trading year that ended in March, analysts expect a decline of about 8% this year.
Therefore, BT looks like it’s returning to the familiar pattern of annual reductions in earnings that stretches back at least as far as 2017. Indeed, the only year that earnings recently rose, was the one that’s just finished.
Meanwhile, one way of looking at the firm’s performance regarding value is by examining the dividend record. And, sadly, the forecast dividend of 7.79p per share for the current year is roughly half what the payment was for 2017.
The dividend situation is one outcome arising from the operational difficulties suffered by the business over the past few years. And the medium-term decline of the share price is another consequence of falling earnings.
Improving operational efficiency
But the company has been making moves to improve the efficiency of its operations.
For example, from 1 April, BT began reporting its former Enterprise and Global business units as a single entity. The new enlarged unit is known as BT Business. And the directors expect the move to enhance value for its business-to-business (B2B) customers.
On top of that, the change should strengthen the firm’s competitive position, and deliver material synergies in operations.
The directors estimate the new unit will deliver around £100m of gross annualised savings by the end of the trading year to March 2025.
But BT needs cost savings wherever it can get them. The company has been suffering from the headwinds caused by inflation and rising expenses just like businesses in other sectors.
And on top of that, the costs of rolling out its ultra-fast full fibre internet and 5G networks are huge. And the requirement for ongoing capital investment never seems to end in the telecommunications game – as soon as one programme of investment finishes, the next upgrade seems to start.
In conclusion, I don’t see BT shares as a bargain right now. The company may go on to grow and improve its financial outcomes for shareholders. But there’s also a lot of risk here.
