espite the BT
share price having risen 56.1% in the past year and 16.9% year-to-date, the stock closed at 160.3p on 22 September – down 22.4% from its 52-week high of 206.7p, which it set on 23 June.
Underpinning the pullback in the BT share price has been the telecoms company’s disappointing first-quarter 2021 earnings, which were released on 29 July. Though EBITDA was up 3% at £1.87bn (a better-than-expected result), revenue came in 3% below analyst forecasts at £5.07bn. BT’s global division saw a 21% decline in year-on-year sales – the most significant drop across all segments.
Although BT is expecting revenue to begin rising again over the coming quarters, one figure that will be of concern to investors is likely to be its widening debt, which rose by £409m to £18.57bn in the three months to the end of June. The impact of the coronavirus pandemic aside, the company attributed the rising debt to a 63% increase in capital expenditure, which is largely due to its investment in 5G infrastructure.
5G investment: a long-term tailwind for BT share price
As Light Reading, a publication for communications professionals, puts it: “BT’s 5G rollout is slow going.” That said, it does seem like BT is ahead of its rivals, namely Vodafone [VOD], O2 and Virgin Media.
“On the face of it the headline announcement – that BT will provide a near-nationwide 5G service by 2028 – sounds rather underwhelming,” Iain Morris, editor of the publication, wrote in July, reflecting on a new commercial BT had released to promote the upgrade.
Yet, he adds, BT is the only network to have been transparent about its 5G progress. It claims to already be providing the service to about 40% of the UK population, and its interim goal is for more than half of the country to have access to 5G by the end of 2023.
For long-term investors with a keen interest in the future of telecommunications, an eventual nationwide rollout of 5G will bring clear advantages both for BT’s customers and its revenues, as more people may decide to switch to BT’s network.
The market can be fickle and impatient, however, so in the short-term a slow 5G rollout could weigh on the share price, especially if news emerged that the rollout has been prolonged or that its debt is continuing to rise.
In a bid to turn the company’s fortunes around, BT has brought in Adam Crozier, the former CEO of ITV, and Royal Mail, as chairman. He was appointed to the board in August.
This is considered positive news and could persuade investors to buy in the hope that Crozier will improve its fortunes. But for passive investors, BT is losing its value as a dividend stock.
Having previously paused its dividend after paying out 4.62p on 3 February 2020, BT intends to resume its dividend in 2021-2022 at an annual rate of 7.7p. This is half the 15.4p per share that had been returned to investors between 2017 and 2019.
Analysts at Jefferies have forecast for the 7.7p dividend to be held through to fiscal 2024, as reported by Proactive Investors.
Despite what is arguably a disappointing dividend, the analysts argued in an August note to clients that the BT share price pullback had gone on for too long. Their target for the BT share price is 260p, implying a 62.2% upside from its 20 September closing price.
*No.1 Web-Based Platform, Platform Technology and Professional Trading, ForexBrokers.com Awards 2021.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.