Like many shares on the London Stock Exchange, BT Group (LSE:BT.A) has been on a bit of a rollercoaster ride recently.
The stock displayed a 32.3% decline during 2022. However, in 2023, the stock initially started improving and increased up to 41%. But in April, the stock reversed its course and started to decline again. Overall, the stock is currently standing at the same level as at the start of the year. It shows that it hasn’t been a smooth investment for retail investors. And looking at the last five years, shareholders are probably disappointed by its 34% drop.
But has this lacklustre performance created a buying opportunity for my portfolio? Let’s take a closer look.
Key Points
- BT Group shares are on the rise after years of poor performance.
- The company’s 5G infrastructure covers 40% of the British population, with 6.4 million customers using the network.
- Rising levels of competition are giving the BT share price a run for its money.
The bull case for BT Shares
For those who haven’t heard of this company before, BT Group is the largest telecommunications company in the United Kingdom. And for years, the business hasn’t exactly been well run.
A complacent management team let rival firms steadily steal market share, resulting in a shrinking top and bottom line. So, I’m not surprised that BT shares haven’t been delivering great performance during this period.
But today, those problems seem to be in the past. After acknowledging its mistakes, the management team has since been rigorously upping their game.
Specifically, it’s drastically accelerated its rollout of fibre-to-the-premises (FTTP) and 5G communication. In addition, it’s looking to improve its customer retention levels by providing a better user experience for its global services.
So far, these initiatives seem to be progressing well. Today, 14 million homes are using BT’s fibre optic internet service, and the company remains on track to hit its 25 million home target by 2026.
Over in the land of mobile telecommunications, the company’s mobile products run over the EE network, with 4G and 5G speeds covering over 90% of the UK1.
A lot of these customers are upgrading from legacy services. As such, the top line has remained relatively flat in 2022.
That’s obviously not a particularly exciting achievement. But when compared to the consistent declines seen in the past, this could be an early indicator that the business is turning itself around.
And given the immense opportunity 5G presents, this could soon translate into significant growth for BT shares and their dividend income capabilities.
RELATED: How to analyse 5G stocks
The risks are still high
The group’s managerial woes appear to be in the past. But that doesn’t mean damage wasn’t dealt. Building and maintaining telecommunications infrastructure is not a cheap endeavour. And with profits shrinking over the years, BT Group started taking on a lot of debt to fund its operations. At the end of the fiscal year ending 31 March 2023, BT’s net debt stood at £18.9bn.
However, I believe this debt will soon be shrinking. The company is cutting costs, and it will be reflected in the rising increased cashflows. Let’s keep our fingers crossed for the next financial results.
But even if the business manages to keep its financials in check, there is growing concern coming from the competition. Two other leading UK telecommunications groups, Virgin Media and O2, merged in 2021. And the CEO of this new business fired a pretty direct warning shot, saying that BT Group “better watch out because every day we are trying to challenge them”.
The rival firm is looking to equip up to 15.5 million homes with fibre by 2028, and since there are only around 30 million homes in the UK, that means a battle for market share is about to begin. It’s too soon to tell which group will be victorious, but if BT fails, then its shares are likely going to take a hit.
Should I buy BT shares today?
Overall, my opinion of BT Group has improved in recent months. With management finally taking expansive action and the balance sheet seeing some structural upgrades, the firm’s earnings should be in for some positive momentum. At least, that’s what I think.
Having said that, as an investor, I’m personally unsold about making an investment in this business for my portfolio. It will take several years to repair its fundamentals fully. And with more agile, less debt-ridden competitors encroaching on BT’s market share, the firm could struggle to hold its ground. Therefore, despite its seemingly cheap PE ratio, I’m going to keep the stock on my watchlist for now.
Learn more about BT Shares
- The BT share price is on the move. Should I buy the stock now?
- The BT share price is up 60% in a year! Can it continue to climb?
- Can the BT share price continue to climb higher?
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Article Sources
- RC Wireless News. “EE expands 5G footprint in rural areas across the UK“
Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
