After inflicting years of misery on loyal investors, the BT (LSE: BT.A) share price has suddenly jumped 9.61% in a month. Now I’m wondering whether I should buy it today, in the hope of more to come in 2024. It’s a tough call.
Plenty of investors have bought BT shares in the hope of tapping into a Rolls-Royce-style recovery. So far, most have been disappointed. The stock is down 3.09% over one year and 51.88% over five. Yes, the rate of descent has slowed, but that’s different to actually rising.
The recent jump followed an upbeat set of first-half results, published on 2 November, which showed “BT Group is delivering and on target”, in the words of outgoing CEO Philip Jansen. That’s been a long time coming.
On the up
BT is busily connecting customers to its next generation networks, simplifying its products and services, and seeing predictable and consistent revenue and earnings growth, Jansen added. Reported profit before tax rose an impressive 29% to £1.1bn. Hurrah for that. Yet revenue growth remains sluggish, up just 3% to £10.4bn.
At least this gives incoming CEO Allison Kirkby something to sink her teeth into. As we saw when Tufan Erginbilgic took over at Rolls, a new face at the helm can transform investor sentiment, if they get their messaging right.
BT still has huge net debt of £19.7bn (that’s up from £18.9bn on 31 March, mainly due to pension scheme contributions). However, the group’s transformation programme is apparently on track to meet its £3bn a year savings target by 2024. That may help.
The big attraction of buying BT shares today is the yield, currently 6.3%. Management is taking pains to suggest this is sustainable, noting that first-half 2024 net free cash flow is “substantially offsetting” the final 2023 payout. The current dividend is covered 2.5 times, which offers further reassurance. Normalised free cash flow for full-year 2024 is towards the top end of the guidance range.
There are pros and cons
I don’t expect a rising income, though. BT held the dividend per share at 7.7p in 2023, which is less than half the 15.4p it paid in 2019. The forecast yield 6.33% for 2024 and 6.39% for 2025, scarcely higher than today.
BT shares are cheap as chips, trading at 6.3 times earnings, yet I’m still wary. Kirkby could start her tenure by rebasing the dividend, as new brooms are prone to do. Why take that chance when equally cheap but less risky FTSE 100 stocks already yield more? I’m thinking of Legal & General Group‘s 8.45% yield but others spring to mind.
BT’s high debt, pension scheme duties and fibre rollout costs rule out the chance of any share buyback, now freely available elsewhere on the FTSE 100, as companies take advantage of today’s low valuations.
Yet if I wait until BT is in better health, the opportunity to get in on the cheap is likely to have passed. I’m torn but I’m saying no. I just think there are safer ways to play the stock market recovery, whenever it comes.
