Picture supply: BT Group plc
Telecom large BT (LSE: BT.A) stays a preferred share with retail buyers. However BT shares have been a catastrophe for a lot of house owners.
Over the previous 5 years, they’ve greater than halved in worth. The previous 12 months alone have seen a 22% drop within the BT share value.
A 7.1% dividend yield helps to cushion the blow of weak share value efficiency.
Nonetheless, even that has been unreliable. There have been no dividends in 2021. The payout per share has halved since 2019.
Does this imply BT is a duff share doomed to weak efficiency? Or may the long-term value fall provide a shopping for alternative for my portfolio?
Relentless challenges
Many years in the past, BT had a monopoly on a service utilized by nearly all houses and companies. They despatched prospects payments that always didn’t even break down in nice element what they have been paying for.
The telecoms trade has modified radically since then, posing some large challenges to BT. There’s much more competitors. New applied sciences imply that BT’s legacy enterprise has been in long-term decline.
On prime of that, BT has been carrying sizeable pension obligations that proceed to pose a giant monetary burden.
Earnings resilience
If something, it’s spectacular that earnings per share have been pretty strong over the previous few years.
Certainly, BT shares at present commerce on a price-to-earnings ratio of simply six. That will appear very low cost.
Earnings can embrace non-cash objects, nevertheless, so on their very own they don’t essentially give us the total image about how an organization is performing financially.
Contemplate the free money move image at BT – how a lot onerous chilly cash is definitely coming in or going out of the door annually. Right here the efficiency strikes round a good bit.
Created at TradingView
As an investor that issues me. BT has confronted numerous challenges to its free money move, from excessive capital expenditure necessities to the necessity to prime up its pension fund repeatedly. Such dangers proceed.
Certainly, a technique to enhance free money flows is to scale back expenditure on dividends. That will assist clarify why, over the long term, the annual dividend paid on every BT share has been repeatedly reduce.
Created at TradingView
Final yr’s dividend was the identical because the prior yr’s. The newest, interim, payout was additionally held flat.
As the corporate defined in its 2023 annual report, “as we proceed by means of probably the most intensive section of our full fibre funding programme, capital expenditure will stay excessive with a corresponding impression on our normalised free money move“.
Share value disappointment
I feel the efficiency of BT shares over each one and 5 years factors to the identical issues.
A declining legacy enterprise, ongoing capital expenditure necessities notably in its Openreach division, and unsure final pension obligations are all long-term clouds hanging over the corporate’s valuation.
On prime of that, web debt grew on the interim stage to nearly £20bn. That’s nearly double BT’s market capitalisation.
The enterprise stays worthwhile and I do see progress alternatives, particularly in Openreach. It additionally advantages from a well known model.
However I feel the decline of BT shares displays ongoing challenges dealing with the corporate. I’ve no plans to take a position.
