Up 47%, does the BT share price have more room to grow?
One of the star performers in the FTSE 100 index over the past year has been BT (LSE: BT.A). In just 12 months, the BT share price has soared 47%.
Sure, it has been a good year for the FTSE 100. The flagship blue-chip index has moved up 14% during that time. But with a performance over three times as strong, the BT share price has left it in the dust.
What has been going on – and might it make sense for me to buy some BT shares for my ISA even at this point in the game?
Long-term, revenues are in decline
At the operational level, it has largely been business as usual for the telecoms giant.
In the first nine months of last year, adjusted revenue fell 3% year-on-year. I do not mind investing in businesses with limited growth prospects, but it is always something of a red flag to me when a firm has falling sales revenues.
That can make it harder to swallow fixed costs – and a telecoms operator has plenty of those. BT revenue has been in long-term decline for years with the odd exception (such as 2024).
Shaking the value tree
The first nine months of last year saw adjusted earnings before interest, tax, deprecation and amortisation (EBITDA) grow 2%. All of that came from the firm’s Openreach division. Its consumer and business arms both showed year-on-year EBITDA declines.
I generally treat EBITDA with caution as a performance metric. Expenditures like interest and tax can be real cash costs. But in the first half, BT’s adjusted EBITDA grew 6% and reported profit was even stronger, up an impressive 29% year-on-year. So while we await the full-year numbers, it looks as if it was potentially a year of revenue contraction but real profit growth. That is consistent with a mature business milking its cash cow.
That helps explain why the BT share price has performed so strongly over the past year.
Investors have been running the slide rule over the business and weighing up some of its strengths, such as a still-powerful brand, large installed user base, significant pricing power and an Openreach business that is both valuable and has long-term growth prospects.
Add in the profits and BT may have looked like a bargain. Even now, after the share price rise, its total market capitalisation is only £15bn.
I don’t like the risk profile here
But the full picture is more complicated than that. For one thing, the business may only have a market capitalisation of £15bn, but that does not mean it is valued at £15bn. BT also has net debt approaching £20bn.
In the first half of last year, that grew rather than shrinking. Over the long term, a key risk I see (and that has put me off buying BT shares in the past) is that its legacy pension scheme could suddenly need more money put into it, eating into profits.
Indeed, the business said the net debt growth in the first half was “mainly due to pension scheme contributions”. Add to that uncertain long-term financial obligation a business in structural decline and I do not see the BT share price as a bargain.
At a price-to-earnings ratio of 20, I see it as pricey. I will not be investing.
The post Up 47%, does the BT share price have more room to grow? appeared first on The Motley Fool UK.
AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!
Buckle up because we’re about to dive headfirst into the electrifying world of AI.
Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.
If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?
More reading
- £10,000 invested in BT shares 2 years ago is now worth…
- Here’s what £10,000 invested in BT shares a year ago would be worth today
- Down 6% today, is the BT share price gearing up for a larger fall?
- BT shares are just over £1.50 after a 5% dip, so is now the time for me to buy?
- Up 28% in a year, what next for the BT share price?
C Ruane 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.
