When it comes to UK telecommunications, BT Group (LSE: BT.A) stands as one of the most recognisable names in the sector. However, over the past 12 months, BT shares have fallen over 8%, currently sitting at 117p. At that price, I think the stock could be a solid addition to my portfolio. Let’s dig into some of the reasons why.

Attractive valuation

One of the most enticing aspects of BT shares is their remarkably low valuation. Currently trading at a price-to-earnings (P/E) ratio of 6, the shares are priced much lower than the FTSE 100 average, which hovers around 14. This disparity suggests that BT’s stock could be significantly undervalued, offering me an attractive entry point.

A household name

The company is a household name in the UK, and its brand recognition is a valuable asset. With a legacy spanning over a century, BT has built a reputation for reliability and innovation in the telecom industry. This strong brand presence translates into a substantial customer base and gives it a competitive edge.

In addition to this, BT has made strides in expanding its 5G network coverage across the UK. Currently covering over 1,000 towns and cities across the country, BT’s 5G network positions it as a key player in the race for faster and more widespread connectivity.

This not only enhances its service offerings but also opens up opportunities for revenue growth, particularly in the emerging 5G-driven ecosystem. As the demand for high-speed internet and low-latency connections continues to rise, the firm’s substantial 5G network coverage places it in a favourable position to cater to these evolving consumer needs.

Macroeconomic headwinds

While BT has many strengths, it’s not without its challenges. The company currently has just under £20bn in debt on its balance sheet. Although UK inflation has slowed over the past 12 months, it’s still putting pressure on the country’s economy. In a climate characterised by inflationary pressures and rising interest rates, servicing such a substantial debt load could become increasingly challenging.

High inflation erodes the real value of debt, and higher interest rates can lead to increased interest payments, affecting the company’s profitability and cash flow. If higher debt repayments materialise, it could damage BT’s bottom line. What’s more, it could limit its ability to invest in new growth initiatives and adapt to changing market dynamics.

The bottom line

In my opinion, BT shares present a compelling investment case with several notable advantages. On a P/E basis, the stock is priced well below the FTSE 100 average. And its strong brand recognition across the UK is undeniable. In addition to this, its impressive 5G rollout has already made significant strides towards complete UK coverage. I’m willing to overlook the debt issue given its numerous strong points. And as such would consider adding it to my portfolio today.

The post Should I buy BT shares for my portfolio at 117p? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like most stocks, BT (LSE: BT-A) shares have fallen in 2022. Down 11% year to date, the stock has seen its valuation fall largely due to rising inflationary pressures. Over 12 months, the stock is down 9.8%.

Regardless of the falling share price, I think that now could be a great time for me to buy BT stock. Let’s take a closer look at why.

Great value

At its current share price, BT trades on a price-to-earnings (P/E) ratio of 12.1. Although slightly above the ‘good value’ barometer of 10, it seems like a reasonably cheap valuation. When looking at BT’s nearest competitor, Vodafone, which trades on a P/E ratio of over 20, I see even more value in BT.

In addition to its value, it currently has a meaty 5% dividend, which is comfortably above the FTSE 100 average of 4. This could be great for adding passive income to my portfolio and helping me hedge against inflation.

BT is a big name in the telecoms industry, which is deemed a ‘defensive’ one. What this means is that it tends to fare well in times of economic turbulence. This is because (pretty much) everyone needs broadband, so the demand is always there. Also, due to the large amounts of pre-existing infrastructure that telecoms firms have, there’s usually less of a need for huge ongoing capital expenditure, which would increase in price with rising inflation.

There have been multiple forecasts of the UK economy entering a recession. As the economic climate worsens, stocks like BT could be in a good spot to weather the storm.

Poor results

Yet its share price performance doesn’t reflect this. Another reason why the stock hasn’t performed well this year has been due to its Q1 23 results. It reported that revenue rose 1%, but profits fell over 10% compared to the year before. A large chunk of this drop came from the group’s enterprise division, which has been suffering due to rising inflation putting pressure on B2B sales.

BT shares are also facing pressure from strike action. The Communication Workers Union (CWU) has been in talks with BT for some time surrounding pay packages. The firm had made a series of offers to the CWU, all of which were refused. Further strike action is set to take place because of this.

Strike action puts it between a rock and a hard place. If it doesn’t increase pay, operations are hindered, results are tainted, and the stock goes down. However, as it employs roughly 100,000 people, increasing pay means millions in extra costs. With thin margins, this isn’t something it can afford.

The verdict

Overall, BT shares look like a solid buy to me, especially in the current uncertain macro climate. Yes, it reported poor results and is in a dispute over pay. However, I feel the value, dividend, and future outlook of the firm outweigh these risks. As such, I’m looking to load up on BT shares at 153p.

The post Should I snap up BT shares at 153p? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The last time I covered BT (LSE: BT-A), the stock was performing well. However, in the past 30 days, the share price has slid over 17%. Year to date the shares have fallen almost 10% and in the past 12 months, they’ve dropped almost 11%. So, with the share price at a dip, is now the time for me to add this FTSE 100 stock to my portfolio? With inflation on the rise, I think so. Let’s take a closer look.

Poor results

The recent fall in the BT share price can be attributed to its results released at the end of last month. The group reported a marginal 1% increase in revenue, which reached £5.1bn. It also revealed that its Openreach fibre optic broadband now covered over 8m homes and its 5G network covered 55% of the UK.

So, why have the shares fallen? Well, while revenues rose, profits fell by over 10% compared to the year before. Much of this drop was fuelled by the firm’s enterprise division that has been performing poorly in the last year. CEO Philip Jansen highlighted that the division would face “ongoing challenges” throughout the remainder of 2022 and beyond.

Inflation hedge

Although the firm’s profits have fallen, I think that the stock could be a great buy at the current share price. A primary reason for this is the current state of the UK economy. Inflation is still on the rise, reaching a sizzling 12.7% for June. Economists are predicting this trend to continue towards the back end of 2022 and into 2023.

BT has a huge number of assets in the form of pre-existing infrastructure, which is great at protecting it against rising costs. In addition to this, the company is a ‘defensive stock’. Even when the economy falls into recession — something looking ever more likely — people will be watching TV and making phone calls, so it will always have customers.

It also operates with a low price-to-earnings (P/E) ratio of just 12.4. Comparing this with competitor Vodafone, which has a P/E ratio of just under 20, I see great value. The meaty 4.9% dividend that BT shares offer is also comfortably above the FTSE 100 average of 3.7. This could be great for topping up my portfolio with some extra cash. Both of these factors encourage me to buy the stock.

Why I’m buying

In my opinion, the low valuation and inflationary hedge mark an attractive opportunity to add BT shares to my portfolio. The shares have been sliding due to sub-par results. However, in my opinion, the business is still well positioned for long-term success, especially when considering its impressive 5G and Openreach expansion. Therefore, I’m looking at opening a BT position in my portfolio in the near future.  

The post I’m using this FTSE 100 stock to help protect my portfolio from inflation appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• Which will reach £2 first, Lloyds or Vodafone shares?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

BT (LSE: BT.A) recently published its Q1 earnings. Since then, its stock has dropped by 8%. As such, the current BT share price could present a buying opportunity. However, a deeper look at the business could indicate that it’s a value trap.

Average numbers

Although both revenue and adjusted EBITDA saw slight increases, investors were disappointed to see the rest of BT’s financials worse off. With the group’s net debt seeing a £325m increase, this soured investor sentiment, as BT already has a high debt-to-equity ratio of 105.8%. The justification for this according to management, however, was higher pension contributions and slower free cash flow.

Bad numbers aside, the telecommunications company had some bright spots that are worth pointing out. For one, it managed to achieve a record number of customer connections for its full fibre broadband, with over 8m homes and businesses now connected. Additionally, BT now anticipates increasing its Openreach network to reach a further 3.5m premises this year.

The company’s Consumer and Openreach lines of business saw decent growth. Nonetheless, revenue growth from those two divisions was offset by legacy product declines and the current tough economic environment for businesses.

Aside from that, the firm also managed to finalise its partnership with Sky, which should further increase broadband coverage in the future. But most importantly, its long-awaited join venture with Warner Bros. Discovery has finally been cleared by the CMA. And despite the lacklustre numbers, management still reiterated its outlook for the year, which remained unchanged.

Possible hang ups

Nevertheless, BT still faces a number of bumps on the road. With the FTSE 100 firm no where near to resolving pay disputes with its workers, I’m anticipating further strikes to go ahead. This would definitely disrupt the business’ operations and affect its cost structure. In fact, management mentioned that it’s had to invest in contingency plans to minimise disruptions.

Moreover, CEO Philip Jansen stated that the company will be setting in price hikes for its broadband services. While this should help to mediate rising costs across the board, BT has intense competition to worry about, and risks losing customers to its competitors. This is because a join venture (JV) between Virgin Media O2, Liberty, and Telefonica are hot on its heels. The JV plans to invest £4.5bn to connect a further 7m homes. This would bring Virgin’s reach to 23m by 2027.

Close call?

That being said, the firm still faces strong headwinds that makes its outlook less convincing. BT seems to be reliant on its Consumer and Openreach divisions to maintain profitability for the time being. If inflation continues to run rampant, achieving its FY23 outlook is going to be a very close call.

So, do I think the current BT share price is a bargain? Not in my opinion, as I think it’s more of a value trap. Its 4% dividend yield could be a valid reason for me to invest, but I’m afraid that BT’s increasingly high levels of debt are going to hinder its earnings potential.

The post Is the BT share price a bargain or value trap? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

BT (LSE: BT-A) shares have proved to be a great investment so far in 2022. They’re up 12% year to date, and 3% over the last 12 months. With markets looking increasingly uncertain, and the threat of recession looming, I think BT could be a great stock market play for me. Let’s take a look at why.

Valuing BT shares

Digging into BT shares’ value, I see a lot of positives. The company is super-asset-rich, which has provided a great hedge against inflation this year. Judging by BT’s most recent report, the value of its assets comes to just under £9bn. There are currently just under 10bn shares outstanding. Dividing these two numbers shows me that the value of BT’s assets adds up to around 90p of the share price. So in one way, I could say that if I buy BT at 193p, I’m buying it for 103p.

Judging the share price at this hypothetical 103p, the BT price-to-earnings (P/E) ratio falls to just 7.9 (almost half the current P/E ratio of 15). Comparing this to competitor Vodafone that currently trades on a P/E ratio of 21, I see huge value. Also, the current dividend yield is 4%, which could add a healthy passive income to my portfolio.

As mentioned above, BT’s abundance of infrastructure has helped it weather the storm of rising inflation. This is because having large amounts of pre-existing infrastructure means that operating cost exposure remains low. BT’s well-established customer base also helps it alter its prices in line with inflation, which can mitigate the risk.

The Q4 2022 results gave me confidence. The telecoms giant delivered on all of its strategic priorities with its 5G network now covering over 50% of the UK, and its Openreach ultrafast broadband now being installed in over 7m homes. This highlights to me the firm’s dominance in the sector.

A risky investment?

It’s not all perfect, of course. The biggest risk I see for BT is that it has over £20bn in debt on its balance sheet. Interest rates have been rising in order to keep inflation under control, and these rising rates could magnify BT’s debts. That being said, the firm announced that it expects free cash flow to rise by over £200m in 2023. This should help mitigate the risk of rising debt repayments.

The cost-of-living crisis could also place big pressure on BT shares. If it increases its prices too quickly, then it could force customers to turn to cheaper alternatives. It operates with a low 7% profit margin, so a substantial loss of customers would place big pressure on the firm’s profitability.

The verdict

Overall, I think BT stock offers me good value at the current share price. The healthy dividend and encouraging results reaffirm the strong investment case. Personally, I think that these positives outweigh the current risks, and hence I’m looking at adding a BT position to my portfolio in the near future.

The post BT shares are up 12%: is now the time to buy? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The BT (LSE: BT.A) share price has managed to buck the trend of the FTSE 100 this year. While its overall index has declined 5%, BT is up 10%. Given its defensive status as a stock, it makes me wonder whether the UK’s market leader in telecoms can sustain its rally.

Forming connections

Aside from its defensive nature, BT has more things going for it. For one, its mobile network, EE has been named the best mobile network in the UK by RootMetrics. Additionally, its 5G network now covers 50% of the UK population, with the firm planning to continue investing in its expansion.

Secondly, the group’s Openreach network now covers 7.2m premises, providing 1.8m connections, with a strong and growing early take-up rate of 25%. This momentum has therefore allowed BT to revise its target of installing fast broadband fibre in 20m to 25m homes by 2026.

Discovering a brother

The blockbuster, however, is its joint venture with Warner Bros Discovery. The two giants agreed to form a premium sports JV for the UK and Ireland earlier this year. This combines the offerings of BT Sport with Eurosport UK. Therefore, customers can now enjoy the most extensive portfolios of premium sports. These include the UEFA competitions, Premier League, UFC, Olympic Games, the tennis Grand Slams, and many more!

Moreover, BT Sport announced yesterday that it had been chosen to remain the home of European football for the next five years. The FTSE 100 firm said that it will pay £305m per season to keep showing UEFA Champions League matches on UK television and online streaming from 2024 to 2027. Under the competition’s new format, there will be 27% more games for customers to watch each season. As such, I imagine this would bring in more revenue for its consumer segment.

Buy signal?

All of the above excites me very much. However, BT could run into a couple of roadblocks. The first would be the investigation of its joint venture. The Competitions and Markets Authority (CMA) fear that the partnership will reduce competition. So, an unfavourable outcome could end up denting the BT share price. The second is the recent news that its call centre workers and Openreach engineers have voted to strike. As a result, BT will most likely have to fork out bigger paycheques for its workers as a long-term solution, eating into its already declining bottom line.

This brings me to the state of the company’s financials. Aside from its sky-high debt of £16.2bn, it has been facing declining top and bottom lines. In fact, its earnings have dropped 9.9% on average per year for the last five years. When paired with its low levels of cash (£3.4bn), its fundamentals certainly look grim.

So, should I buy BT shares? Well, the stock has an average price target of £2.10, which would mean 10% growth from its current levels. This isn’t much, but it does suggest BT shares have the potential to continue their rally. However, given the uncertainty surrounding the JV and its poor financials, I won’t be investing in BT shares until there’s more clarity surrounding the inquiry and its balance sheet improves. Instead, I’ll be investing in companies with better fundamentals.

The post Can the BT share price continue its rally? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2022 has been a tough year for stock markets. Rampant inflation has led central banks to hike interest rates, and as a consequence stocks are taking a hit. For context, the FTSE 100 and S&P 500 are down 6% and 23% year to date, respectively.

However, there are some stocks that have weathered the storm of this year’s market volatility. BT (LSE: BT-A) stock is up 4% this year, rising 9% in the past six months. Granted, the shares are down 10% over the past 12 months, but with the recent positive move, is this stock a no-brainer buy?

A great buy

One of the primary reasons I like the look of BT is due to its ‘defensive’ nature. The company has a huge amount of pre-existing infrastructure, meaning it has little operating cost exposure. In addition to this, the firm’s strong customer base gives it — up to a point — good pricing power, meaning it can move prices in line with inflation. Both of these factors should help BT stay afloat in today’s volatile markets.

The Q4 2022 results released in May also contained some good signs. The firm delivered on its main strategic priorities, with its 5G network now covering around 50% of the UK. In addition to this, its ultrafast Openreach broadband was rolled out to an additional 3m homes, now totaling 7.2m across the UK. Finally, FY2023 free cash flow predictions were adjusted from £1.3bn to £1.5bn, showing the strong cash generation of the telecoms giant. This should ensure a stable dividend for the foreseeable future.

Looking at BT’s valuation fills me with even more confidence. The shares currently trade on a forward price to earnings (P/E) ratio of 9.1. This is below the P/E ‘value’ marker of 10. In addition to this, it looks much cheaper than competitor Vodafone that trades on a forward P/E ratio of 14.8. BT also offers a healthy dividend yield of 4.3%, which could top up my portfolio with extra cash.

Not plain sailing just yet

One risk I see for BT in the near future is the cost of living crisis. Yes, it has the luxury of moving its prices in line with inflation, but customers can only be pushed so far. They do have other options and if prices rise too much, they could move. It operates with wafer-thin margins so any substantial loss of customers could pose a big threat.

In addition to this, BT’s balance sheet is stacked with over £20bn in debt. As interest rates creep up, this figure could slowly rise, putting pressure on the business. However, BT’s cash positive cash flow projections signify that this debt isn’t an immediate risk.

A no-brainer buy?

I have a soft spot for BT stock in the current market, however, I wouldn’t go as far as calling it a no-brainer just yet. I think the stock could perform well over the next few years, and also provide me with a good inflation hedge. However, I think wider market volatility could dent the share price in the near future. As such, I’m going to wait until BT’s July results before making my move.   

The post Is BT stock a no-brainer buy at 180p? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With the shares climbing above 200p yesterday, could now be the perfect time to buy the stock for my portfolio? Let’s take a closer look.

Reasons to be excited

Earlier this month, BT announced it’s in the process of selling its Premier League rights to US streaming giant DAZN. Valued around the $800m mark, this deal could be great news for BT’s cash flows and investment prospects. These funds will likely be used to aid its fibre-optic broadband rollout, which BT has committed £15bn to over the next five years.

In addition to this, takeover rumours have been floating around for months now. The primary reason for this is the actions of billionaire Patrick Drahi. In June 2021, Drahi bought an unexpected £2.2bn worth of shares, taking a 12.1% stake in BT. He has since increased this stake to 18%, attracting significant takeover speculation. A successful takeover would likely boost BT shares, although as long-term investor, I would never buy purely on takeover speculation.

US private equity firm KKR has also shown interest in the European telecoms sector. Back in November 2021, it put in a €33bn offer for Telecom Italia. If US private equity attention is heating up, then it could trigger a bidding war over BT, which would massively drive up BT shares. This is a phenomenon we saw in mid-2021 with the CD&R takeover of Morrisons.

A final reason for excitement comes from bullish City analyst estimates, which predict that BT could generate £1.8bn in earnings for the fiscal year 2022. This shows an encouraging step forward from the £1.5bn generated in 2021. If such results do come to fruition, I would expect BT shares to keep rising.

Risks for BT shares

One large risk I see for BT shares is the high debt levels the firm operates with. Its commitment to rolling out fibre-optics could be a great long-term investment. However at present, it restricts BT from tending to its debt pile. Debts increased by a whopping £447m for the nine months to December, currently sitting at almost £13bn.

What’s more, with inflation rising, interest rates are also beginning to creep up. Rising borrowing rates are very bad news for a firm with such high debt.

Should I buy now?

Although rates are a risk for BT, inflation has been an issue for some time now, and the shares have continued to creep up. After all, trading at a P/E ratio of 10.5, the stock doesn’t seem expensive. Considering the encouraging share price growth and low valuation, I’d be happy to add BT shares to my portfolio today.  

The post BT shares hit 200p: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.