Image source: BT Group plc
I BT (LSE: BT) share price had a week, as I believe the kids like to say, after long-time partner Sky announced it would be offloading some business to one of the new fiber kids on the block.
Shares fell 9% in a matter of hours and a cool £1bn market cap was wiped out. The share price now sits at 138p. A short but steep decline has ended what threatened to be a good year for the world's oldest telecommunications company.
Has the market overreacted here? Or is this a stock you can cover the phone with? Let's take a look.
The battle lines
The latest news is a sort of 'broadband war' with a focus on BT's Openreach service. Openreach is the company's fiber division, tasked with rolling out hyper-fast fiber broadband and faster internet speeds.
Worse, this is a market that does not cover nearly half of UK households without its coverage. Growth is not easy for telcos so this is an important part of the business.
On the other side of the battle lines are the 'altnets' – smaller, alternative fiber broadband providers, Davids to BT Goliaths. The largest of these altnets, CityFibre, has signed a deal with Sky to provide fiber to its customers. Not only does this threaten to steal business from BT, but stronger competition could drive down margins and affect Openreach's earnings.
I will have to add my own information here as I signed up for altnet recently after moving to a new place. I was a little nervous signing up for a company I had never heard of. Those worries quickly disappeared when the installation was scheduled within a day, completed within an hour, and every time I needed to speak to someone on the phone, I didn't have to wait 45 minutes.
It didn't feel like 2020s Britain at all. If that's what altnets offer I'm afraid the big players don't offer it. In other words, I can see these altnets eating BT's lunch.
Buy at a profit?
And if I'm not happy with Openreach as a source of growth then it's hard to see BT as anything other than a stable dividend stock. The company pays a yield of 5.92%, which is fairly high, the 13th largest payout FTSE 100. If I were withdrawing from the nest egg I would take that much annual return and take stocks.
With more time to play though I should be looking at the growth side of the equation and the stock price has traded sideways for decades.
Ironically, I could have bought stocks in the 1980s and sold them today at a loss. Overall, this is not a stock I like even after the share price decline.
Source link
