Image source: BT Group plc
To say that BT (LSE: BT.A) has put in a mixed performance over the decades to put it mildly. Even now, BT’s share price is not even a quarter of what it was in the dotcom boom more than a quarter of a century ago.
However, recent performance has been encouraging. Indeed, in the past year alone, the share has increased by 38%. Even after that share price growth, BT offers a dividend yield of 3.9%. That puts you well above the FTSE 100 average.
Have I missed the boat – or should I still be taking BT shares into my portfolio?
It’s an uneven business
It may sound surprising that a long-established telecommunications company has shown such strong price gains in just 12 months. After all, this industry is often seen as staid.
In fact, it’s not just BT’s stock that has behaved erratically over the years. The results of your business were all over the place.
Revenue has declined in three of the last four years.
Since BT is in a mature industry and to some extent trying to prioritize profit over growth, that’s not a big surprise – but it still concerns me when I look at the company as a potential investor and the revenue is going down significantly over time.
Meanwhile, last year’s profit of £1bn was better than the year before – but pales in comparison to the £1.9bn achieved just two years ago.
It’s a legacy business and it shows
There is a reason for this. BT basically has the pros and cons of a legacy business.
Advantages include a large pool of customers, a broad asset base, a well-known (if not universally loved) product and deep expertise.
But there are also disadvantages. BT has somehow been slow to capitalize on some of the more exciting opportunities in its space, compared to nimbler, smaller rivals.
Even at Openreach, which feels less tied to BT’s traditional business of decades past, the company has had problems. It reckons there were around 850,000 lost Openreach broadband lines last year. That suggests that its value proposition is struggling to stay relevant in a competitive market.
The business is also bundled with pension obligations dating back decades. Those can go down as well so BT sometimes has to set aside some cash to cover potential gaps in the pension. I see the danger that that may happen again in the future.
Why can’t I buy
In fact, those pension obligations alone would make me stop buying BT shares in my portfolio. I don’t like the fact that they can add billions of pounds in liabilities to the company’s balance sheet.
And I don’t think the current BT share price-to-earnings (P/E) ratio of 22 is very attractive.
As I mentioned above, BT salaries tend to fluctuate. Even if they just recover to where they were several years ago, the potential P/E ratio becomes very attractive.
On that basis, if the business does well, then I see the potential for the share price to rise further from here.
But, considering the risk, I will not invest.
