In recent months, I’ve tracked BT (LSE:BT-A) shares with great interest. Rumours of joint ventures and a takeover have heightened my interest. Looking more closely at the business, however, is the current share price of 191p a bargain I can’t miss? Let’s take a closer look.
Cheap at current levels?
Over the past year, the share price has fallen slightly, by 2.7%, but it’s up 7.86% in the past six months. This is relatively strong, given the broader market sell-off in progress.
By referring to the price-to-earnings (P/E) ratios, I can better understand if a company is under- or overvalued. To calculate these, I simply divide the share price by earnings, or forecast earnings for forward P/E ratios.
BT currently has trailing and forward P/E ratios of 14.83 and 8.62. These are far below those of major rival, Vodafone.
| Stock | Trailing P/E ratio | Forward P/E ratio |
| BT | 14.83 | 8.62 |
| Vodafone | 20.61 | 14.84 |
While I don’t use this method solely to make an investment decision, it’s a strong hint that BT shares are a bargain at the moment. I find this very attractive as a potential investor.
In addition, for the year ended March, the business reported that adjusted earnings were £7.5bn, up 2% year on year.
Furthermore, cash flow for the period was better than expected and the firm’s efficient 5G rollout has enabled it to maintain a strong and loyal customer base.
Despite this, the cost-of-living crisis and surging energy costs may force customers to consider downgrading or leaving the network altogether. This could be bad news for BT shares.
Joint venture and potential takeover
There’s also the matter of the joint venture with Warner Brothers Discovery. This will amalgamate their respective sports segments, BT Sport and Eurosport UK. This deal could potentially be worth around £0.5bn to BT if certain performance-related criteria are met.
It’s worth noting, however, that this JV is currently under investigation by the UK Competition and Markets Authority (CMA).
While it could be an exciting opportunity for the company, BT recently lost the exclusive rights to Champions League matches. Although it will still show games from the competition, Amazon will also begin streaming these matches.
French media mogul Patrick Drahi also doubled his stake in BT in December and may increase it further this summer, in line with UK regulations. He currently owns 18% of BT and any more purchases by Drahi could be positive for the share price. However, his holding in the business is currently under investigation by the UK government.
Yet overall, BT looks to be in a strong financial condition given its solid cash flow and customer retention. The shares may also be a bargain at current levels. Although there are ongoing investigations, I think they appear to be fundamentally short term in nature. I will therefore be adding BT to my portfolio in the near future.