Telecoms giant BT Group (LSE:BT.A) has seen its share price rise 36% in the last six months. The FTSE 100 stock has been boosted by takeover rumours and a positive business outlook.
I believe that the future looks bright and that the BT share price could continue to rise. Here is why.
A hedge against inflation
As inflation in the UK hits a 30-year-high of 7%, it is putting additional strain on business costs and harming firms’ profitability. BT, however, is positioned well to mitigate the risks of rising inflation.
As interest rates rise, it will become increasingly more expensive for competitors to finance new infrastructure projects. As a result, BT’s leading position in telecommunication infrastructure is safeguarded.
BT also has strong control over consumer prices. Mobile and broadband packages have become essential goods in the UK economy. This means the firm has the power to raise prices in line with inflation without causing a significant decline in demand — this helps to maintain a strong profit margin. While BT is not immune to all the challenges inflation provides, it does seem to be positioned well to cope with future price volatility.
More positive news for BT?
One of the main reasons for the positive momentum behind the BT share price was the purchase of an 18% position in BT by Patrick Drahi’s company Altice. The stake signals confidence in the company from the respected telecom tycoon. Because of this, investors have rediscovered faith after a volatile two years for the FTSE 100 share.
It is not clear yet if Drahi is planning a takeover of the company. Because of UK takeover rules, this will only be clear by the summer. However, if this is his intention, the BT share price will be expected to rise in value and investors will be rewarded.
Risks to consider
Despite the generally sunny outlook, BT has a number of risks to be considered. The first is that BT is relatively debt-heavy with £22.8bn on its balance sheet. This debt will become increasingly more expensive to finance as global interest rise with inflation, which could harm future profitability.
Secondly, the firm must be careful with how much it is raising consumer prices. While it is important to raise prices slightly to fight higher costs, overdoing this would be detrimental. BT is currently one of the more expensive telecom providers and any further increase in prices could divert customers elsewhere.
Despite these concerns that should be considered, I am still impressed by BT’s current business position. While the company is unlikely to deliver high growth over the next five years, its inflation resistant business model makes it a strong hedge against future inflationary risks.
I believe that this, alongside the potential takeover bid, signals future positivity for the share price. I am seriously considering adding this FTSE 100 share to my portfolio.