Stock market

As BT share price rises 10% on financial year results, is it time to buy?

Image Source: BT Group Plc

BT Group (LSE: BT.A) posted a 3.9 percent profit on May 16, and the share price rose 10 percent in early trade.

Speaking about the year ending March 31, CEO Alison Kirkby told us BT’s progress “It gives us the confidence to deliver new guidance to significantly increase short-term cash flow and sets us on a path to double our normalized free cash flow over the next five years.

What does this mean for my fears over long-term dividend stability? It can send it to the trash, that’s all.

The firm is also “Exploring options to improve our global business“And focus on the UK. So we could see some disposals before too long.

Milestone

The update discussed two key milestones that could materially change the cash flow outlook for the future. BT has passed on major capital expenditure on its full fiber broadband rollout. And it has hit its £3bn cost-savings target a year ahead of schedule.

Kirkby said:We have now reached an inflection point in our long-term strategy.“Could this also mark an inflection point for the BT share price? I think it just might.

That would mark a welcome change in direction for a stock that has lost 40 percent of its value over the past five years.

elephant

I can’t ignore the big room thing though. loan BT’s net debt rose again to £19.5bn, from £18.9bn a year earlier.

That’s not extra debt, though, as the firm has reduced planned pension scheme contribution increases of £0.8bn.

Oh yes, pension fund deficits. It ranges from £3.1bn to £4.8bn. Together, they add up to £24.3bn. And BT’s market cap is just £11.2bn, Gulp!

Time to buy?

It all depends on the diagnosis for me. And on basic measures, BT looks cheap. Forecasts cut the price-to-earnings (P/E) ratio to about seven, nearly halving FTSE 100 Long-term average

But we need to adjust for debt. What would it cost to buy the entire company, and pay off the debt and pension losses? Adding this up, I produce an adjusted P/E of around 22.

But it may still be reasonable for a telecom leader that appears to have turned around sustainable long-term earnings growth. And the cash flow prospects make the dividend a bit safer.

Decision

For this year, BT expects adjusted earnings growth of 0-1%, which isn’t fantastic. But EBITDA of around £8.2bn, with £1.5bn of free cash flow, looks like good news for dividend investors.

And the board hopes to reach free cash flow of around £2bn in 2027, and to reach £3bn by the end of the decade.

To buy or not? Those who think about it need to balance this seemingly strong progress on one hand. And set that against that huge debt and high adjusted P/E on the other hand.

me I’m warming to the idea of ​​just taking the 6.8% dividend yield and not thinking too hard about the rest.


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