Has the BT (LSE: BT.A) recovery finally started, and will the share price now continue to soar?
Maybe. The full-year report delivered on 16 May appears to have fired the starting gun on a change in trend for the stock after years of falling.
It looks like chief executive Allison Kirkby’s words did the trick.
The telecoms company has passed peak capex regarding its full-fibre broadband rollout. On top of that, the £3bn cost and service transformation programme has completed a year ahead of schedule, Kirkby said.
A positive outlook
There was no holding back the optimism: “We’ve now reached the inflection point on our long-term strategy”.
What does that mean? Well, Kirkby said the directors now have the “confidence” to provide new guidance. BT expects “significantly” higher short-term cash flow, and free cash flow looks set to “more than double” over the next five years.
Looking towards the next moves for the business, she said the intention is to “accelerate” the modernisation of operations. The directors also aim to seek ways to “optimise” global operations.
Kirkby thinks the strategy will help to deliver “significant” growth in the coming years.
Is this really it? Has BT finally turned the corner after a long and torrid time for the business and its shareholders?
Maybe. But it’s worth noting the adjusted figures for the trading year to 31 March were a bit underwhelming. Revenue was essentially flat year on year, earnings declined by 16%, and net debt rose by almost 3.3%.
Nevertheless, investing in stocks is all about looking forward rather than back. That’s perhaps why the share price shot up when the report hit the newswires.
But what if I’d invested £3,000 in the stock three months ago? How much would I have now?
No dividends have gone out over the period, so the gains will all have come from the rising share price.
In early March, I could have picked up around 2,830 shares for about 106p each. Fast-forward, and those shares are now changing hands for around 133p.
Ignoring trading and execution costs for this example, my gain would have been about 25% or £750. So, I’d now be sitting on an investment worth approximately £3,750.
Why I’d consider BT shares now
That’s not a bad return for such a short period. I can understand why it may be difficult for new investors to consider BT shares now after the strong and fast rise.
After all, the initial investor optimism may fade, and the share price could decline. Also, the company may have difficulty living up to its own high expectations in the coming years. One area of concern is the huge pile of debt on the balance sheet – BT still comes with plenty of risk.
Nevertheless, I think it would be a mistake to avoid the company now. Often, businesses and stocks really do start new and enduring phases of prosperity and growth after such initial strong reversal price movements – it goes with the territory of positive changes to business fundamentals.
My plan would be to focus on BT now and dig in with deeper research and consideration with a view to buying a few of the shares for the long haul.
