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I’ve been plotting to buy BT (LSE: BT.A) shares for at least five years, trying to find the right time to snap up this volatile telecoms giant.
While this FTSE 100 stock has performed poorly over that time, falling 29.17% over five years, investors who bought on the dips will nonetheless have made money, and BT has seen plenty of dips.
Finding the right time to buy
For example, if I’d invested £5,000 in BT shares three years ago, I’d have bought them for 115.8p each. That would have given me 4,319 shares, which are currently now 144.75p each. So today my stake would be worth £7,238, an acceptable return of 25%.
In practice, I’d have more than that, with dividends included. While BT scrapped its dividend in the 2020 pandemic year, in the last two years it has paid 7.7p a share, which would have given me £665 on top, lifting my total return to £7,903.
Investing in other years would have been less rewarding. BT stock is down 19.29% over the last 12 months. So much for recent history. What really matters is where they go next.
Its shares slumped on Friday after management announced 55,000 job cuts by 2030, mostly in the UK, in a bid to save £3bn by 2025. Stock markets aren’t sentimental and share prices often bounce on news of job cuts, but not this time.
CEO Philip Jansen unveiled a 5% rise in full-year core earnings rose to £7.9bn, but pre-tax profits fell 12% to £1.7bn. I’m particularly worried by the 5% drop in free cash flow to £1.3bn. BT’s forecast yield of 5.3% is still covered 2.6 times, but dividend growth may be slow from now on.
The company isn’t operating in just one tough market, but several, including mobile, fixed-line and broadband. It has a huge net debt of £18.9bn, which dwarfs its market cap of £14.4bn and is a growing burden as interest rates look destined to remain high. It will also put off potential buyers, by elevating the cost of any purchase.
The debt pile increased £850m following a £1bn contribution to its pension scheme, and that liability is yet another thing to worry about.
I’m hovering over this one
Management has had some successes. Openreach is on target to provide full fibre to 25m premises by the end of 2026, while BT Sport’s merger with Eurosport to create the TNT Sport joint venture is promising.
Yet it looks stretched thinly across so many areas and its shares are only a fraction higher than they were after privatisation in 1985, almost 40 years ago now.
Unsurprisingly, BT shares look cheap, trading at 6.6 times earnings, and once again, my finger hovered over the ‘buy’ button in my online trading account on Friday. Yet when it came to spending actual money, I couldn’t do it.
There are just too many question marks hanging over BT, for which I see no easy answers. I like to buy shares with a 10-year view, but I can still see BT battling a host of fronts a decade into the future. Its shares look like too big a gamble for me. There may be a right time to buy them, but today doesn’t feel like it.
