The BT (LSE: BT) share price has had a barnstorming year, rising 27.76% over the last 12 months. But it has a long way to go. The shares are still down 18.1% over five years.
At one point, BT shares had lost more than 75% of their value. That brought out bargain seekers, while scaring others away. I watched from the sidelines, deciding it was too risky for me.
And I’m still watching. There’s finally some light at the end of what has been a long, dark tunnel for BT. Is now the time to buy?
Can BT continue its recent recovery?
The turning point was 2023’s full-year results, published on 16 May. BT reported a 31% drop in annual profits but the shares jumped 10% after CEO Allison Kirkby declared the company had reached an “inflection point” as its nationwide full-fibre broadband rollout programme had finally hit peak capex.
The group also hit its £3bn cost savings target a year early and was aiming for another £3bn in gross annualised cost savings by 2029.
Kirkby hiked BT’s dividend by 3.9%. This killed off concerns that the dividend was unsustainable and might be cut. Given that the shares were yielding around 6% at the time, this was the best reason to hold BT.
The dividend looks reasonably secure today, with Kirkby forecasting that normalised free cash flow will double to £3bn by 2030.
Today, the shares have a trailing dividend yield of 5.54%, comfortably above the FTSE 100 average of 3.54%. That’s forecast to grow to 5.65% in 2024 and 5.77% in 2025. Which isn’t spectacular, but isn’t bad either.
BT shares have climbed steadily since, albeit with volatility along the way. They jumped 8% on 12 August after Indian conglomerate Bharti Enterprises took a 24.5% stake, then plunged 8% on 20 August as TV provider Sky chose to offer its broadband via alt-net provider CityFibre.
This stock’s cheap but still risky
That was a blow to BT which has poured £15bn into Openreach and hopes to cover 25m homes by the end of 2026. Yet this remains a highly competitive market. BT lost a record 200,000 customers to rivals in the first quarter alone.
Kirby still has to tackle the long-standing problem of the group’s massive £20bn debt pile, which exceeds its £14.1bn market-cap, and its pension scheme deficit. I also think her dream of using artificial intelligence (AI) to axe 10,000 posts by 2030 – with 55,000 jobs going in total – sounds a little fanciful.
Many of these concerns are in the price, with BT shares still valued at a lowly 7.81 times trailing earnings despite the recent recovery. That’s half the FTSE 100 average of 15.3 times.
The 14 analysts offering one-year price forecasts for BT have set a median target price of 200.4p. That’s up 38.46% from today’s 144.4p. There’s a huge range in there though, from a low of 110p to a high of 290p.
BT’s edging towards the light but still has a huge journey ahead. I’m tempted by that low valuation and high yield, but wary. I’ll keep watching but I won’t buy it today.
The post 5.6% yield and a P/E of 7.8! Here’s why I’m watching the BT share price appeared first on The Motley Fool UK.
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Harvey Jones 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.
