The BT Group (LSE: BT.A) share price has been in decline for years.
It’s gained 20% since the start of 2023. But it’s done that in the past two years too, falling back each time. And we’re looking at a loss of nearly 40% over five years.
Recovery time?
I don’t want to think of the size of the fall since the heady days of the dot com bubble. Valuations back then were just not rational, and I doubt we’ll ever see such prices again.
But will there ever be a BT share price recovery, or is the stock doomed to stay low forever? I see some positive signs.
The dividend is one, with forecasts showing a 5.7% yield this year. And if that’s not enough, City analysts expect it to keep going over the next few years.
Cover by earnings would come in around two times, which looks good. So why are investors so nervous?
Debt, competition…
BT’s net debt, at £18.9bn, is huge. And it rose by £850m in the past year. The increase is mainly due to a £1bn contribution to the firm’s pension fund. Oh, did I mention the big pension deficit that’s been hanging round BT’s neck for years?
Still, even companies with high debt can keep paying dividends. Just ask competitor Vodafone, which has been handing out cash for years as if it grows on trees.
Oh, wait, Vodafone is just starting on a much-needed shakeup. At FY results time, new boss Margherita Della Valle said: “Our performance has not been good enough. To consistently deliver, Vodafone must change“.
Companies in the telecoms business need huge capital expenditure just to keep up with the competition. And high debt seems unavoidable.
So if Vodafone needs a kick to get back on track, does BT need the same? I think it might.
Content delivery
BT has one big plus, in my view. And that’s its content delivery business. BT Sport is big, and the firm’s TV channels could be the jewel in the crown.
Other telecoms companies want a chunk of BT, with Altice having upped its stake to 24.5%. Altice says it has no interest in a takeover. But, as we’ve seen with the merger of Vodafone and Three, there’s room for consolidation in telecoms.
In fact, I can’t help feeling there are too many players in an industry that is so expensive to push forward. Further mergers and takeovers might be a good thing.
Buy BT?
So would I buy BT shares now? Well, a price-to-earnings (P/E) ratio of around eight looks cheap. But with net debt quite a bit higher than BT’s market cap, that’s meaningless.
I expect BT can muddle on for years. It’s been juggling its debt and its pension fund for decades, and has still managed to pay decent dividends. I suspect the cash stream can keep going.
But the debt and uncertainty, coupled with the competition, make it a no for me. The share price? I think it might drop even lower — which could mean better dividend yields, at least.
