BT Share Price: debt remains an issue

BT Share Price

After a sustained period of decline, BT’s share price (LSE:BT.A) has displayed signs of a steady recovery. Over the past five days it has jumped by 12% to 152.15p per share as news emerged that the network secured a bargain deal in the latest auction of 5G airwaves. While over the last 12 months, BT shares are up by 20%.

BT Performance

There are a number of areas for concern when it comes to the company’s balance sheet. BT has a debt to total equity of 175.40 and a long-term debt to equity of 150.65 which is a cause for concern for the future prospects of the company. The company’s net debt, while still high at £17.3bn, fell by £940m, according to the most recent trading update. BT’s high debt levels could factor in to its decision making over dividend payments in the coming years.

The company’s profit also fell by 17% Q3 up to 31 December 2020, down to £1.591bn. BT put the drop down to reduced EBITDA.

BT also has a questionable track record in terms of paying dividends out to its shareholders. The media company axed its dividend due to the pandemic and has confirmed it does not intend to pay a dividend for the current financial year. Prior to 2020, BT paid three consecutive total dividends of 15.4p.

Outlook

BT announced in its most recent trading update that it will be implanting a modernisation strategy. This includes selling off business units in Italy which has previously been a troublesome asset.

In addition, the company has made efforts to boost its exposure to high-growth sectors. This includes the hire of Bharti Airtel in India to head up its cloud computing, artificial intelligence, and machine learning operations.

“This is more than a leadership announcement, it’s an important statement of intent. 2020 saw a number of major BT innovations enter the marketplace but there’s opportunity to go much further,” said BT’s CEO Philip Jansen at the time.

The BT share price comes across as cheap with a price-to-earnings ratio of 6.5. However, this could also be a reflection of the company’s limited earning potential, and the impact of its high debt on future dividends.