BT share price is extremely cheap: is it a value trap?

BT (LON: BT.A) share price has continued to underperform the market this year as concerns about its growth remains. It is down by over 16% this year while the FTSE 100 index has risen by 2% and is hovering at its all-time high. It has also lagged behind Vodafone whose shares have fallen by over 4%.

Vodafone vs BT Group vs FTSE 100

BT Group has been a value-destroyer

BT Group, one of the biggest telecom companies in the UK, has been a major value destroyer of value to shareholders. At its peak in early 2000, the stock was trading at 562p, meaning that long-term holders have lost over 81% of their funds since then. 

The stock crashed to 38.43p during the Global Financial Crisis (GFC) and then rebounded and reached a high of 346.7p in February 2016. Since then, the stock has crashed by over 70%. 

BT Group’s stock performance is mostly because the company has had no revenue growth over the years. It generated over £20.5 billion in annual revenue in 2010 and £20.58 billion in 2022. Its revenue only peaked at £24 billion in 2016 and has been dropping since then. 

The same is true about the company’s profits. While BT Group is still a highly profitable company, it has had no growth because of its investments in 4G and 5G networks.

BT Group had an annual profit of £1.56 billion in 2010 and just £1.72 billion in 2022. Its highest profit level happened in 2016 when it made a profit of over £3 billion.

The most recent results showed that the adjusted revenue in the nine months of the year rose slightly to £15.7 billion.

This performance has led to a deterioration of BT Group’s valuation. Data shows that its PE ratio has dropped to 6, down from last year’s high of 8.8. It had a PE ratio of almost 20 in 2022, meaning that it has become cheap. Indeed, a DCF valuation finds that it is trading at a 77% below its fair value.

Analysts have mixed opinions about BT Group. UBS has a sell rating, citing its weak growth prospects. Berenberg upgraded BT from hold to buy while Barclays boosted its price target. 

BT share price forecast

BT chart by TradingView

Turning to the weekly chart, we see that the BT Group share price has been in a strong freefall for a long time. It has now formed a descending triangle pattern, which is usually a bearish sign. It is now hovering near the lower side of this pattern, meaning that a bearish breakout may be imminent.

The stock has remained below the 50-week and 100-week moving averages, signaling that bears are in control. Therefore, there is a likelihood that the stock will continue falling if it breaks below the key support at 101.45. If this happens, the next point to watch will be at 95p. 

The key risk to this thesis is that the new CEO, Alison Kirby is doing some changes to simplify the company, which could be received well by the market. 

For example, she is considering selling the Irish corporate business that sells to companies and wholesale customers. She has also sold the iconic BT Tower in a £275 million deal.

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