Image source: BT Group plc
Is the BT (LSE: BT.A) share price likely to break the 400p barrier again and shoot higher like Rolls-Royce did?
I think there is a good chance of doing so.
Prepared for conversion
Where will the stock be in five or 10 years, I keep asking myself. After all, CEO Allison Kirkby started the stock's bull run in May with an important announcement.
Kirkby said the business had reached the peak of its capital expenditure to implement a full broadband system. But it didn't end there. The firm's cost and service transformation program completed a year ahead of schedule.
Those things could add to the company's surplus going forward. In addition, there is an opportunity for additional income and profits to come in due to the company's previous investment.
It's the stuff of conversion dreams! Look what happened Company Rolls-Royce Holdings when business finally finds its mojo to change after this pandemic.
Could the same thing happen with BT over the coming months and years with the share price revisiting old highs? It can, however positive results are not certain or guaranteed.
However, at least one major investor sees potential in BT. In August, the company announced that India's largest telecommunications investor Bharti Global (part of Bharti Enterprises) had reached an agreement to acquire at least 25% of BT's shares.
Good test
By any standards, that's a big commitment and it looks like an investment.
At the time, the chairman of Bharti Enterprises, Sunil Bharti Mittal, said: “BT has a strong portfolio of market-leading brands, high-quality assets and an experienced management team with a compelling strategy…”
Mittal thinks BT is playing a “important” role in expanding the full fiber broadband infrastructure in the UK. The company's focus is on strengthening networks, customer growth, and efficiency “all aspects” of its business positions the business well, said Mittal. So, it seems worth backing Bharti's hard-earned money.
I think Mittal's assessment is encouraging. However, the risk remains with BT shareholders. Perhaps the main one is that there is no sign of rising incomes… yet. City analysts expect an 18% drop in average earnings in the current trading year to March 2025 followed by a weaker performance next year.
Income, too, is predicted to remain low. So a long-term investment in BT shares now requires some serious faith.
However, with a share price in the ballpark of 151p, the forward dividend yield for next year is just over 5%.
Without further increase in the share price, I think the profit level is good for accumulation. Meanwhile, the company's improved cash flow after the divestment may be effective in supporting dividend payments to shareholders up front.
On balance, despite the risks, I see BT as worthy of further and deeper research now with a view to considering the stock for inclusion in a diversified portfolio focused on the long term. Meanwhile, the icing on the cake is its change and growth.
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