While investors are wondering if global indexes will make a turnaround this year, one UK share has been winning quietly. BT (LSE:BT-A) shares have slowly gathered momentum after the pandemic crash. In fact, in the last six months, BT shares have consistently ranked in the top 10 FTSE 100 performers list. And since November 2020, the BT share price is up nearly 90%, an impressive statistic for a company that many investors tend to overlook.
But how do I see the stock performing going forward? Is this surge temporary or are there signs that the company can continue this run and break the 250p barrier? Let’s find out.
Deserved momentum?
The oldest telecom company in the world used the pandemic internet boom to make some strong infrastructural changes to better its product offerings. BT Group has been upgrading its 5G network and spent £604m on research and development in 2022.
Openreach, BT’s broadband brand, is looking to bring full-fibre broadband across Europe and is now almost 30% of the way through. The project has connected 7.2m premises in the country with high-speed internet and aims to reach 25m locations by 2026. This could make BT the telecom provider to usher in the age of Web 3.0 in the UK.
The 5G network of BT’s flagship telecom brand, EE, now covers more than 50% of the UK population. The service provider has amassed more than 7m 5G users. As a result, BT’s mobile user base is now growing at a rate faster than pre-pandemic levels.
This shows me how important faster internet speeds have become in just two years. And BT’s large customer base has become its biggest asset. It is much easier to convince an existing user to adopt newer tech than to acquire new customers. And I think this gives BT shares an edge over competitors.
Financials
The telecom company generated revenue of £20.9bn in financial year (FY) 2022, down 2% from FY2021. But pre-tax profit grew 9% to 2bn in the same period, which allowed the company to record total profit growth of 2%.
While this in no way screams ‘buy’, considering the £5.3bn in expenditures, it is decent growth in a turbulent economy. BT also saved £1bn via cost-cutting last year. This allowed the board to reinstate the cancelled full-year dividend at 7.7p per share.
But my biggest concern with BT shares right now is the sky-high £18bn net debt. And given BT’s increasing expenditure, this could weigh on future results, causing a share price crash. Also, BT’s normalised free cash flow has been falling every year since 2018, which could add to its debt pressures as well.
However, the board is targeting £2bn in savings by FY24 and £2.5bn by FY25. And over the next financial year, the board expects to generate £7.9bn in revenue, which could allow the company to slowly chip away at its debt.
I think the BT share price is currently buoyed by the strong work put in during the pandemic. The company is now well set to lead the UK into the new age of the internet. If the fibre optic expansion targets are met, I think the company could generate strong recurring revenue for decades. This will put BT shares in a solid position to break the 250p barrier in the coming years.
