BT share price forecast: Strike to impact telecom giant recovery?
UK telecoms giant BT (BT.A) has rebounded from a plunge of 24% in the second half of February and early March, which saw the shares drop to a low of £1.63. The company’s shares then rallied to a three-month high of £1.93, and have since been trading between the £1.73 and £1.95 marks for almost four months.
Investors appear to be running hot and cold on BT as it continues its massive investment plans and builds up a huge debt, which, with rising interest rates, may cost more to service. But the company’s management says this investment is crucial if BT wants to be a part of the potentially huge growth markets on offer.
The City is taking heart from the growth in both its full fibre and 5G rollout programmes — both viewed as critical to BT’s future.
But there are drag factors, such as Covid-19, rising inflation and possible supply chain issues, while there is still speculation in the City of a possible takeover bid from major shareholder Patrick Drahi, leading to fluctuations in the share price.
In its third-quarter results, revealed on 3 February, BT posted revenues of £15.68bn — down 2% on the same period last year — and pre-tax profits of £1.54bn, which were down 3% year-on-year.
Can the telecom major return to consistent share price growth? In this article, we examine the company’s fundamentals and the latest BT price predictions.
Company history
BT’s origins date back to the founding of the Electric Telegraph Company — the world’s first public telegraph company — in 1846, which developed a communications network across the UK.
BT in its current form started to take shape in 1912, when the General Post Office (GPO), the UK’s state postal system, took over the National Telephone Company, becoming the country’s monopoly telecommunications supplier.
The Post Office Act of 1969 led to the GPO becoming a public corporation. The British Telecom brand was introduced in 1980, and became independent of the Post Office in 1981, officially trading under the name.
British Telecommunications was privatised in 1984, becoming British Telecommunications plc, with 50.2% of the new company being offered for sale to the public and employees. The company changed its trading name to the now-familiar BT in April 1991.
The UK government then sold its interests in the company: the first half in December 1991, followed by the remainder in July 1993.
BT has a primary listing on the London Stock Exchange (LSE), trading under the BT.A ticker, and is a constituent of the benchmark FTSE 100 index with a weighting of 0.64%. BT shares were also listed on the New York Stock Exchange in the form of American Depositary Receipts (ADRs) until 13 September 2019.
BT share price analysis
Despite its downbeat earnings report, BT’s share price held up well in the week after the release, adding to a strong three-month rally that saw the shares rise by 17.07%. The beginning of that three-month ascent, after more favourable second-quarter 2021 earnings, jolted the telecoms company into life following a sustained quiet period.
BT’s positive momentum over that period has been largely in line with Vodafone, its closest UK communications rival in terms of market cap. Vodafone’s reasons for growth were similar to BT’s, bouncing initially on good earnings, which seemed to alert investors, as well as reports by Bloomberg that the company is exploring an acquisition of competitor telecoms company Three UK.
Patrick Drahi, Israeli-French billionaire owner of European communications business Altice (ATUS), has also bought into BT heavily in the last year, upping his stake from 12% to 18% and supporting the share price.
A full bid for BT from Drahi — deeply politically unpopular and unlikely, given the National Security and Investment Act 2021 — is not expected from Altice for the moment. A rising share price could also be a potential deterrent to a Drahi acquisition.
BT’s shares were up 0.85% on 7 July 2022, leading to five-day growth numbers of 2.55% and bumping the company’s market value to £18.94bn.
TMT a hot sector in Europe
BT is enjoying gains from a red-hot European tech bubble that has seen growth in both initial public offerings (IPO) and stocks over 2020 and 2021.
The company makes up part of the booming technology, media and telecommunications (TMT) sector in Europe, which, based on data compiled by PwC, took up a sizeable share of the continent’s IPOs last year.
The group found that between the second quarter of 2020 — the start of the pandemic — and the fourth quarter of 2021, technology and telecommunications companies amounted to €15.8bn ($18.1bn) in IPO value creation. It is part of a global trend that saw a record 72% increase in TMT IPOs in 2021, according to GlobalData.
The rush for TMT IPOs reflects optimism in the sector that the Covid-induced acceleration for connectivity will proliferate on the back of technological advancement and changing consumer behaviour.
A report from Deloitte suggested that fixed wireless access (FWA) 5G — a key battleground for BT — will grow from 4% of FWA in 2021 to 39% in 2026.
Subscription pressures
BT’s future is broadly tied up in the rush for wireless expansion, with its primary asset Openreach continuing to break new ground, both geographically and in its capital expenditure.
Openreach is at the heart of expansionary activity by BT and has been behind multiple announcements of investment drives to boost broadband across the UK. The latest was a £58m investment pledge for the northwest region of England.
It seems likely that demand for this investment will persist, with less-connected regions of the UK still lagging behind London.
Data published by the House of Commons Library shows that across UK parliamentary constituencies, an average of 45.7% of premises are capable of receiving services delivering speeds of one gigabit per second. Meanwhile, some areas in the northwest region receiving investment hit less than 10% on average, compared with London areas typically exceeding 60%. UK Levelling Up plans are likely to drive demand for this expansion.
The plans also appear to have broader policy backing, with a study by the Centre for Economics and Business Research (CEBR) citing a £59bn boost to UK productivity through the rollout of full-fibre broadband.
It means government and industry investors could throw their weight behind BT and Openreach in the coming years, providing a cushion of support in its share price.
But while development could help it reach new customers, analysts warn that the group will need to continue appealing to them at the bottom line.
BT's ability to roll out a superfast broadband network across the country is also being slowed down by a “tortuous” recruitment process from the EU due to Brexit, according to Openreach chief executive Clive Selley.
Bureaucratic hurdles appear to be slowing down BT’s hiring of EU contractors from countries such as Portugal and Spain. “If it was easier getting people in, I would take a thousand tomorrow,” Selley added.
BT workers vote to strike over pay
BT engineers and call centre staff have also called for a strike for the first time in 35 years as national living costs have exploded. The telecom giant has been involved in a three-month dispute with the Communication Workers Union (CWU), which has accused the company’s management of introducing an insufficient pay rise despite soaring inflation.
BT offered a £1,500 pay increase for employees earlier this year, but with RPI inflation levels hitting 11.7%, the move was labelled a “dramatic real-terms pay cut” by the CWU.
A 32% pay rise for BT chief executive Philip Jansen in the last financial year, which elevated his salary to £3.5m, has also run in uncomfortable contrast to calls from government ministers to restrain pay for most voters.
The CWU announced that the union’s 30,000 Openreach engineers voted by 95.8% to take strike action on a 74.8% turnout. BT staff — including 9,000 call centre workers — voted for strike action by 91.5% on a 58.2% turnout.
A vote by CWU members at BT subsidiary EE failed to reach the legal threshold by a few votes.
If BT bosses and workers can’t agree on a pay deal — the CWU represents about 40,000 of BT’s 100,000 workforce — then the disruption to the UK’s broadband infrastructure and EE network could be huge.
Discovery merger
The latest BT share price news centres on the company’s recently agreed 50/50 joint venture with Warner Bros. Discovery to deliver more sports content in the UK and Ireland on the base of its stalwart BT Sport. The deal will bring BT Sport and Eurosport UK together to produce a “premium sports joint venture”, according to the company.
The announcement, made on 12 May 2022, ended heavy speculation first broken by Reuters in January that linked BT with an $800m sale to streaming service DAZN.
The 50/50 venture could help BT ward off competition for TV subscription packages such as Sky Sports and the emerging Premier Sport brands in the UK.
The deal with Discovery, while forgoing revenue from a potential DAZN sale, marks a more deliberate extension into sports content, increasing the attractiveness of its product.
Negative earnings expected to continue
Despite generally positive contextual signals and strong recent share performance to boot, investors have been noticeably shaken by BT’s latest earnings report, which saw the company reporting losses in the quarter.
The company’s revenues of £15.7bn represented a 2% contraction against Q3 2020. But while adjusted revenues contracted, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 2% in the first nine months of the financial year, to hit £5.71bn.
Global revenues took the biggest hit, as revenues contracted by nearly £300m in the first three months of 2021 against the first three months of 2020, with the company blaming negative foreign exchange movements for £100m in global losses.
Fibre to the Premises (FTTP) was a bright spot, helping to offset losses in other areas of the company, with Openreach adjusted revenue increasing by 4% in the nine months to 31 December.
Capital expenditure increases, linked in part to Openreach rollout, can be seen as a key explanation for the extent of losses, with the company’s investment in spectrum and the continued rollout of Openreach harming profits in the short run.
Capital expenditure for the nine months to 31 December 2021 was £3.72bn, a 24% increase on the same time period for 2020. Expenditure is expected to continue, with the company’s outlook for the financial year projecting capital expenditure of £4.9bn, a figure expected to fall slightly to around £4.8bn for FY 2023.
As UK interest rate hikes continue to feed on any positive market sentiment, the company will hope to begin to alleviate some of its net debt, which rose by a further £447m between the first nine months of 2020 and the first nine months of 2021, to hit £17.7bn.
The biggest disappointment for investors came in BT’s downgrades to future earnings and revenues. Revenues are now forecast to decline by 2% by the end of the year.
Revenue growth for BT’s first quarter of 2022, due to arrive on 28 July, is expected to be anaemic, according to AJ Bell analyst Danni Hewson. A BT strike will inevitably dominate the message ‘out there’ — whatever its outlook.
BT share price forecast
British Telecom’s share price forecasts have turned more positive in recent months on the back of the price ascension that began in November.
Based on the outlooks of seven analysts on TipRanks, the BT share price target for 12 months stood at £2.10 as of 7 July 2022, representing a 10.99% upside with a high of £2.90 and a low of £1.40.
An assessment of Class A BT shares compiled by MarketBeat had a similarly strong upside, dragged down slightly by one provided before BT’s rapid ascent beginning in November 2021. Here, the shares had an average 12-month price target of £2.06, ranging from a high of £2.60 to a low of £1.25.
WalletInvestor, an algorithm-based forecasting service, carried a British Telecom share price forecast for 2022-2025 that was bearish in the short run.
The share was projected to have a price of £1.88 in 12 months. In five years’ time — by July 2027 — a BT share was forecast to trade at £1.81.
AI Pickup, on the other hand, gave a more positive BT share price prediction, projecting shares to skyrocket in the long run, with a price of £5.15 in 2030.
Note that these BT price predictions could be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
FAQs
Is BT a good share to buy?
Based on the outlooks of seven analysts on TipRanks, the BT share price target for 12 months stood at £2.10 as of 7 July 2022, representing a 10.99% upside with a high of £2.90 and a low of £1.40.
Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
Will the BT share price go up or down?
No one knows for certain — analysts on MarketBeat and TipRanks have offered 12-month price targets of £2.06 and £2.10 respectively. Algorithm-based forecasting service WalletInvestor had a more bearish outlook, predicting that the shares would drop to trade at £1.81 by July 2027.
Bear in mind that analysts’ views and forecasts can be wrong. It is important to do your own research.
Should I invest in BT shares?
Whether BT shares (BT.A) are a good investment for you depends on your risk tolerance, investing goals and portfolio composition. You should do your own research and never trade money that you cannot afford to lose.
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