In sharp contrast to last year, BT (LSE: BT-A) shares have had a pretty volatile start to 2025. Today’s (30 January) trading update from the UK’s biggest mobile and broadband operator has done nothing to change that.
So, what’s troubling investors?
Mixed numbers
Well, the figures were hardly pulse-quickening. Adjusted revenues dipped 3% to £5.2bn in Q3 following lower sales at the company’s Consumer and Business units.
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On a more upbeat note, revenue at BT’s Openreach division increased by 1% to £1.5bn with 17m Fibre to the Premises (FTTP) connections completed by the end of December. A target of 4.2m premises in the current financial year has been set with the goal of 25m being hit at the end of 2026.
CEO Allison Kirkby was also trying to put a positive spin on things, highlighting that the company’s “cost transformation more than offset lower revenue outside the UK and weak handset sales“. The sale of its data centre business in Ireland — part of BT’s strategy to completely focus on its home market — was also stressed.
Opportunity knocks?
All things considered, it feels like the market has overreacted a touch, especially as BT believes it’s still on course to meet full-year expectations.
Today’s share price fall should be put in perspective too. This company significantly outperformed the index in 2024.
In addition to a rise of almost 17%, investors were treated to dividends of 8p per share. Perhaps some profit-taking — if that’s what we’re seeing — was inevitable.
The question, however, is whether BT can continue to do the business over the long term from here. Well, this is where things get a bit tricky.
Cheap…for a reason?
On the one hand, this still looks to be a very cheap stock. A price-to-earnings (P/E) ratio of just 8 means that BT shares still trade far below the average valuation across the FTSE 100.
Based on the current price, the £15bn cap also boasts a juicy 5.5% dividend yield. That’s more than a fund tracking the return of the UK’s biggest companies will deliver.
However, the prospect of more cash does come with an extra dollop of risk.
One major weakness of the investment case is that BT’s balance sheet still creaks under an enormous amount of debt. This is hardly surprising given that management has committed to throwing billions of pounds into its roll-out of full-fibre broadband. The idea is that this will all pay off with higher profits in the end. Perhaps it will. But shareholders could see quite a bit of volatility along the way if we get any inflationary shocks.
Better buys elsewhere
Considering the above, it’s not surprising that analysts are predicting a negligible rise for dividends in FY26. To me, near-stagnant payouts aren’t particularly attractive. BT doesn’t have the best record of sustaining payouts when the UK economy wobbles either.
Cheap at face value as it may be, I’m still not tempted to buy. Last year’s lovely gain aside, I prefer businesses in robust financial health. While no one truly knows what’s around the corner and no dividend stream is guaranteed, a history of consistently rising payouts with few (if any) interruptions are what I look for.
And there are plenty of those in the UK market right now!
