BT shares have been nothing but a headache for investors over the past five years – a period in which the BT share price is down over 40%.
Yes, there have been trading opportunities where some would have played the 100p-200p range in the BT share price, but this would have been a successful swing trade, not a long-term investment. BT’s time above 200p has been sporadic and brief since 2019
BT does pay a 6% dividend, but the prospect for capital appreciation from current levels is questionable.
In BT’s annual report, the headline message from the CEO was, “Much done, much more to do.” An understatement, to say the least.
Illusive growth
BT has produced little or no top-line growth over the past five years and isn’t offering much in the way of a plan to do so.
The company has undergone a makeover of their Enterprise and Global Customer Facing Units (CFUs) to paper over the cracks. Combining the Enterprise and Global units to form BT Business joins two underperforming units into one new unit that will share costs to achieve higher efficiencies.
This is arguably an evasive manoeuvre likely made to avoid disappointing performance in the coming periods. The combined revenue for the Global and Business units fell in the 2023 full year. There is little prospect for significant top-line growth and the best BT can do is chip away at costs.
BT Business operates in an increasingly competitive landscape and lacks any clear competitive advantage. The same goes for their Consumer business, where adjusted revenues fell from £9,775m in 2022 to £9,680m, although adjusted EBITDA for the segment rose by around 50%.
Openreach is an attractive business with an undeniable MOAT. The fibre rollout has been a capital-intensive undertaking that will reward shareholders in the future.
Unfortunately, its benefits to the group will be muddied by poor performance elsewhere – as was the case in 2023.
BT gave itself a slap on the back for producing adjusted EBITDA growth for the first time in six years in 2023, but profit before tax and operating profit fell.
Lower cash generation
Investors will be concerned that normalised fee cash flow dropped by 5%. For all the changes in strategy and cost-cutting measures, BT is generating lower amounts of cash. If left unchecked, this will hinder further investment and shareholder distributions.
Yesterday, equity analysts at UBS downgraded BT shares to a sell. It’s hard to disagree.
