At around 163p, the BT (LSE: BT.A) share price has fallen by just over 17% since mid-July.
And whenever I see a retreat like that, my instinct is to look at a business to see if it offers better value.
To put the move in perspective, the stock is around 7% down from its level a year ago. And that’s a better reference for an investor focused on the long term, such as me. After all, I expect to hold investments for at least five years and often much longer than that. And in that context, a 7% decline is still within the realms of general market ‘noise’.
Lower cash flow, higher debt
On 28 July, BT issued a trading update covering the three months to 30 June. It’s possible the market was a little disappointed by the figures. They showed modest revenue growth of 1% and a rise in adjusted EBITDA of 2%. The directors attributed those better earnings to “flow through from revenue and continued strong cost control”.
But net debt rose by £0.9bn to £18.9bn. And the directors said that increase occurred because of “pension contributions and lower cash flows”. And I think that could be part of the reason for the recent weakness in the share price. Weaker cash flows are undesirable and so is a big pile of debt.
However, on top of that, BT is another business that has been suffering from industrial action. And thousands of its employees have been striking for better pay. I think the situation could be creating some negative investor sentiment about BT shares.
An upbeat assessment
Nevertheless, chief executive Philip Jansen was upbeat. He said BT made a “good” start to the year and is “accelerating” its network investments and performing well. And that’s despite “challenges” in the company’s enterprise division that provides services for large businesses.
Jansen said BT has been growing its full fibre broadband network “faster than ever”. And the company has been seeing customer connections for its BT and EE networks “ahead of expectations”.
The full fibre network is available to some 8m homes and businesses in the UK. And BT plans to accelerate the rollout from 2.6m premises last year to about 3.5m this year. Meanwhile, EE’s 5G network covers over 55% of the population. Jansen also mentioned an old problem BT has suffered in recent years — poor customer service. Now, though, BT is “achieving continued high customer satisfaction scores”.
Overall, Jansen said he’s “confident” in the outlook for the firm’s trading year to March 2023. And that’s despite the current general economic uncertainty. Meanwhile, City analysts expect earnings to rebound by just over 20% in the current year before easing by about 5% the year after.
A good long-term bet?
There’s no doubt that BT has been investing for the future and that could pay off in the years to come. However, I think the near-term earnings outlook is a little disappointing. However, the shareholder dividend looks set to creep up a bit and is yielding in the region of 4.8%.
I’m not keen on BT for growth and think there are better options for dividend income. Therefore, I’m avoiding the stock despite the recent share price fall. However, that could always prove to be the wrong decision!