BT (LSE: BT.A) shares have a habit of losing their way. They’ve zipped along at times, but at others they’ve lost all direction.
During the dotcom boom, the stock spiked above 1,000p. It’s never come remotely close to those dizzying heights since. To be fair, fellow FTSE 100 telecoms stock Vodafone suffered a similar fate. Both have done well to survive at all.
The dotcom sell-off bottomed out in 2003 with BT trading at around 200p. That’s roughly where the shares stand today. There have been some moments of excitement but, overall, it’s been a bumpy ride.
FTSE 100 recovery stock
BT had to clean up after the dotcom frenzy, weather the financial crisis, pour £15bn into rolling out full-fibre Openreach broadband and build a mobile operation through its £12.5bn EE takeover, to create a “quad-play” telecoms giant.
It even found time to make a quixotic move into sports rights. Somehow, management has kept this legacy blue-chip on the road while technology, customer habits and competition have changed beyond recognition.
I’m glad I never held it though. BT’s stock chart dates back to 1985. In that four-decade period, its shares are up just 28%. Although investors who reinvested their dividends will have done better.
Kirkby’s big test
Today’s chief executive Allison Kirkby has a better story to tell. She’s simplified the sprawl, accelerated cost savings, reshaped the international operation, exited sports and drove Openreach. In 2024, she said BT had reached the “inflection point”, having passed peak fibre spending and completed a £3bn cost and service transformation programme ahead of schedule.
But investors who bought into that upbeat narrative may now feel a little lost. BT shares spiked to 240p in May, helped by reports that Bharti Enterprises was considering increasing its stake. They’ve since slumped 18% to 197p. Yet another underwhelming plot twist.
Full-year results (21 May) were pretty decent though. Pre-tax profit rose 8% to £1.4bn, the dividend increased 2% to 8.32p and management reiterated its target for normalised free cash flow to hit £2bn in 2027, then climb to £3bn by the end of the decade. So does BT now have a better story to tell?
A risky recovery play
The price-to-earnings ratio’s a tempting 10.8x and the trailing dividend yield has crept up to 4.2%. Does it merit our attention again?
If Kirkby hits that £3bn cash flow target, BT should have much more financial firepower to reward shareholders and reduce its towering £20bn net debt.
But telecoms remains a tough market. Last year, Openreach full-fibre connections increased by 2.2m, with the total connected base hitting 8.8m. But BT still lost 825,000 broadband lines to rivals. It expects another 800,000 line losses this year as cheaper alternative networks compete aggressively. Kirkby also has that debt and £3.2bn pension deficit to worry about.
For such an up-and-down stock, I’d much rather buy BT on one of the downs, and I think we have one today. It’s worth considering for its recovery potential and dividend income. But I can see UK growth and income stocks with simpler stories to tell, and I’ll be focusing on those instead.
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Harvey Jones does not hold any positions in the companies mentioned.
