After diving 10% last week, are BT shares a steal?

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Before war erupted in Ukraine on 24 February, things were looking up for long-suffering shareholders in BT Group (LSE: BT-A) shares. On 16 February, BT shares closed at 200.9p, but they haven’t broken the £2 mark since. On Friday, the BT share price closed at 161.8p, roughly a fifth below its 2022 high. So what’s gone wrong for the former telecoms monopoly?

BT shares love to slide

Hundreds of thousands of Britons own BT shares, which are among the most heavily traded on the London Stock Exchange. But the BT share price has lost 5.9% over the past 12 months — and has shown particular weakness over the last two weeks.

Sure, the shares are well ahead of the 94.68p they crashed to on 3 August 2020, as Covid-19 wreaked havoc on financial markets. But they’re also light-years away from the £5 hit in late November 2015. Over five years, this FTSE 100 stock has lost roughly half of its value.

Over the years, I’ve come to regard it as one of the toughest large-cap UK shares to own. The stock seems to rise, only to fall right back down again. In my view, being a BT shareholder must be a painful and disappointing ride.

Could the shares be cheap?

Now isn’t a good time for BT’s bosses. Roughly half of its workers — 40,000 staff — have joined a two-day strike over pay in the first industrial action at the group for 35 years. But BT’s revenues rose to £5.1bn in its latest quarter (the first rise in six years), while adjusted earnings rose by 2% year on year.

So could BT finally be turning the tanker around? When I look at these fundamentals, the shares don’t look at all pricey to me:

Share price (at Friday’s close) 161.8p
52-week high 201.4p
52-week low 134.85p
Market value £16.1bn
Price/earnings ratio 12.8
Earnings yield 7.8%
Dividend yield 4.8%
Dividend cover 1.6

The cash yield of almost 5% a year is easily covered by an earnings yield of nearly 8%. This leaves plenty of room for future dividend uplifts. But there are lots of risks to weigh up for this Footsie stock.

For instance, BT’s key role in providing broadband to the whole of Britain has made it a political football at times. Also, French-Israeli billionaire businessman Patrick Drahi has spend roughly £3.2bn building up an 18% stake in the group. But there’s little to no chance he can turn this into a fully fledged takeover bid any time soon.

Would I buy BT right now?

In addition, the group has a big pension deficit and carries a mountain of debt on its balance sheet. Meanwhile, it has committed billions of pounds in capital expenditure to roll out high-speed broadband across the UK. And while the company is cutting costs, aggressive pay demands might harm future cash flows.

For me, BT shares are a binary bet. If all goes well, they could well be worth north of £2 each. But the group has a history of falling over its own feet. And soaring consumer prices and rising interest rates are brutally squeezing disposable incomes. So while I wouldn’t buy shares in BT today, I might well do if they continue falling!

The post After diving 10% last week, are BT shares a steal? appeared first on The Motley Fool UK.

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.