BT (LSE: BT-A) shares have been rising lately. The stock is up over 45% in 2021 so far and more than 70% in the last 12 months. But have I missed the boat?
Well, maybe not. BT shares are still cheap. The stock is trading on a price-to-earnings (P/E) ratio of 10x. I had been bearish on the stock, but events from last week have changed my mind. I’d now buy and here’s why.
The investor
Last week, it was announced that telecoms giant Altice, overseen by billionaire Patrick Drahi, had acquired a 12% stake of BT. This is a large chunk of the company and I think one that could make a huge difference.
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Clearly the market received the news positively as BT shares were up significantly on the announcement. I think Altice brings a fresh pair of eyes to the UK telecoms firm and could be good for the stock in the long term.
Altice has a long record of operating national fibre and mobile networks in a number of countries for over 40 million customers. In fact, it has built and developed significant networks in the US, France, Portugal and Israel.
So for me, Altice has a wealth of experience that it can apply to BT if it gets more involved there. This will come in useful as the UK company aims to upgrade and expand its full-fibre broadband network to 25m households by December 2026.
I did think this was an ambitious target before. But with this investor’s expertise, I reckon BT could reach its goal.
Potential takeover
Clearly Altice’s significant investment indicates that it believes in the long-term prospects for the UK firm. That said, the investor hasn’t shown any interest to make a bid for a majority stake.
In fact, in the statement, it indicated that “Altice UK has informed the BT board that it does not intend to make a takeover offer for BT”. It’s now bound by the terms of the takeover code. This means that Altice couldn’t submit a bid offer for at least six months, even if it wanted to.
Of course, this is just me speculating. But a potential takeover or an increase in its stake could be on the cards once the dust has settled. I guess I’ll have to wait and see if this happens.
Risks
While things may be looking rosier for BT shares, the stock does come with risks. The first one is the significant debt pile. At present, the company’s total liabilities amount to £17.8bn. When I compare it with BT’s current market cap of £20bn, this is worrying. So far, the firm is able to afford the debt but this could become expensive if revenue falls.
My other concern is the pension deficit. At the end of June 2020, this stood at almost £8bn. As part of its triennial funding review, BT has announced that it remains on track for a zero funding deficit by 2030. While the company has a strategy to deal with it, this could still impact the stock price.
I do acknowledge that BT’s balance sheet isn’t in a great position. But I think now with Altice as an investor, things could start to change. Hence I’d buy the shares now.
