On paper, BT (LSE: BT.A) shares look like one of the best bargains out there. But is that really the case?
I don’t think so. The stock’s hit a 52-week low in recent weeks. Right now, I could pick up one share in the telecoms giant for just 107.5p. However, I won’t be. Here’s why.
A lack of growth
The main reason is down to a lack of growth. Firstly, that’s with its share price. Twelve months ago, I’d have forked out 142.6p for a share, or 24.5% more than today. Five years ago, I’d have paid 228.1p. That’s a whopping 52.9% loss during that time.
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Secondly, the business has also failed to grow its top line. Revenues have slumped since 2017. Between then and now, they’ve fallen by nearly £4bn. That’s concerning.
As a result, earlier this year, it was announced that Allison Kirkby would replace Philip Jansen as CEO. She’s said she remains “fully supportive” of BT’s turnaround plans. This includes plans to cut 55,000 jobs by 2030, with over a fifth of those being replaced by AI.
Heavy debt
Another concerning issue is its weak balance sheet. More specifically, the massive debt pile it has on its books. Currently, this sits at over £20bn. That’s compared to a £10.7bn market-cap. On top of that, with the UK base rate currently sitting at 5.25%, and not predicted to be cut until later this year, that makes servicing this debt an even bigger challenge.
There’s also the threat of competition. There’s no doubt that BT remains a huge player in the industry. However, with the emergence of Altnet providers such as City Fibre, BT has seen its market share slip away.
For the nine months to 31 December, it lost 369,000 Openreach broadband customers. For the financial year, it originally targeted a loss of 400,000. It now expects total losses to exceed this figure.
Not all down and out
So it’s clear there are a lot of issues surrounding the business. However, there are a few tempting factors that make BT look appealing.
Firstly, after taking a hit, the stock, on paper, looks like good value for money. It trades on a price-to-earnings ratio of 5.8. That makes it one of the cheapest shares on the FTSE 100.
I’m an income investor. So I’d also be lying if I said its 7.2% dividend yield wasn’t tempting. That’s the highest it has been since 2020. And analysts forecast it to continue rising in the next few years. With BT stating in recent times that it remains determined to pursue a progressive dividend policy, these are all encouraging signs.
I’m steering clear
Even so, I won’t be adding the stock to my portfolio today. BT is a strong brand trading at a low valuation. However, I think the company and the newly appointed Kirkby face too many headwinds.
I’ll be keeping the stock on my watchlist. If it keeps falling, maybe then I’ll reconsider my position. But, right now, I see other stocks out there I’d rather buy today.
