Stock market

Ouch! Have I just missed a chance in a decade to buy cheap BT shares?

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Last I saw Bt (LSE: BT.A) shares, I thought they looked too cheap to resist and I was a bit away from buying them.

I wasn’t the only one who thought the share price was too low. JP Morgan Cazenove had just called him. “Poised for a major re-rating”.

Shares were trading at just 6.75 times forward earnings while the forecast yield was 7.36 percent. This is exactly the profile FTSE 100 Stocks I’ve been buying for the past year, and with some success. I felt that here was an unforgettable opportunity. So what stopped me?

FTSE 100 FEAR FACTOR

A major problem is that BT has been a losing bet for years. The stock has crashed 31.71% over one year and 54.35% over five. I regularly contemplated catching that falling knife, and was glad I resisted. Was it really ready to recover?

Also, the company has major long-term problems, such as a very expensive pension scheme, and £20bn of debt. Also it operates in a competitive market. UBS BT warned it could be forced to halve its profits to stay affordable.

The value chain and the stream of diminishing returns? It bothered me. So I did what I did every time, and decided to take a short look. Then I blinked and the share price went gangbuster.

On 16 May, BT published its full year 2023 results. I saw a headline that said it reported a 31% drop in annual profit, and expected another big selloff. So imagine my surprise (and disappointment) to see shares rise 10% instead. Second-guessing the market is never easy.

CEO Alison Kirkby raised it to 3.9%, allaying my dividend concerns. Today it looks much more sustainable, with normalized free cash flow expected to double from £1.5bn this year to £3bn by 2030.

Profitable income protection

Kirkby said BT had reached one. “Point of Disposition” As its full fiber broadband rollout program affects peak capex. The group also hit its £3bn cost savings target a year early and was aiming for a further £3bn in gross annual cost savings by 2029.

Who cares if pre-tax profits fall from £1.73bn to £1.19bn? Or was group revenue up just 1% to £20.8bn? The market did not. Not this time, not this time.

At the time of writing, the BT share price is 126.5p. It is up 20% since I decided against buying at 105.35p.

Frankly, I’d feel a bit of a dip in BT shares today. It’s like I’m following the herd. Inevitably, they’re not as cheap as they were, trading at 12.8 times forward earnings. That re-rating is partial. I prefer to buy undervalued stocks before they recover, rather than after. I remind myself that BT still has a lot of debt.

So I will not buy the stock today. I will return to my viewing brief, and hopefully another opportunity will arise in the summer. And that I won’t miss it this time.


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