The stock ticker for BT Group plc (LSE:BT.A, Financial) could very well stand for “Better Times Ahead” in my opinion. I’m bullish on this telecommunications stock because Patrick Drahi, a French-Israeli-Moroccan telecoms billionaire, declared a 12.1% stake in the business in June. This makes him the largest shareholder alongside strategic investor Deutsche Telekom (XTER:DTE, Financial), which also has a 12.1% share.
After touching a price of 5 Pounds ($6.95) in 2015, BT’s shares fell over 80% during the following five years. They have now started to rise as growth expectations are returning following large investment spending at the company and a refocused strategy being put in place.
Drahi’s firm Altice (WBO:ATC, Financial) said it “holds the board and management team of BT in high regard and is supportive of their strategy.” According to Morningstar, Altice said in a statement:
"Altice UK has made this significant investment in BT as it believes that it has a compelling opportunity to deliver one of the UK government's most important policies, namely the substantial expansion of access to a full-fibre, gigabit-capable broadband network throughout the UK."
BT is a Luxemburg based telecom business with over 40 million customers. Drahi, who is the founder and chairman of Altice, started his career laying TV cables in France, so he likely has a high amount of expertise regarding the telecommunications industry.
Unlike with Deutsche Telekom, Altice doesn’t yet have a seat on BT’s board, which suggests Drahi is happy with their current strategy. Although Drahi has ruled out a takeover bid for the time being, a combination with Deutsche Telekom would bring the pair close to the mandatory takeover offer required for concert parties owning 30% of the voting rights of a company, according to the City Code on Takeovers and Mergers.
BT’s CEO Philip Jansen was formerly the CEO of Worldpay, where he saw that company’s own takeover from U.S. fintech firm FIS in 2019 for $43 billion.
BT has been investing around £3 billion to £4 billion in its growth over the last three years and has stated it will be increasing that to a rate of £5 billion a year as it sees growth opportunities in the UK’s telecom network. One of the growth opportunities it is referring to is full-fibre 5G broadband, which is being rolled out across the UK this year and next.
In regards to its balance sheet, with interest rates set to remain at ultra-low levels for the foreseeable future, BT’s £1.85 billion of bonds maturing in 2023 should be able to be easily rolled over by paying them down with new debt.
BT’s last annual report explains how Jansen’s transformation plan, announced in May 2020, is taking shape:
"By reducing the complexity of our product portfolio – particularly products with outdated features, slow speeds, or data caps – we will be able to deliver a better customer experience."
Source: BT Group plc Annual Report 2021
I really like this approach. BT was rightly accused of running an unfocused strategy prior to Jansen taking over as CEO in 2019. A good example of this was when it hatched a half-baked idea to get into sports broadcasting. That division is now up for sale.
The stock looks cheap to me given the company’s growth opportunites. It already has the top market share in both fixed line and mobile networks in the UK, but it can certainly improve in broadband, which is where Drahi and Jansen see the growth opportunity.
The company also has pricing power. I myself am on BT's mobile network, EE, and the service is very good. When my contract expired recently, EE rolled me on to a new higher cost monthly tarriff with more data and I was happy enough with that to not shop around for a switch.
Conclusion
The focused management strategy and the interest of expert investing firms makes me highly bullish on BT. I give the company a forward price-earnings ratio of 8.9 and a forward enterprise value to Ebitda ratio of 4.7. The comparable numbers for rival UK telecoms provider Vodafone Group plc (LSE:VOD, Financial) are 13.7 for the forward price-earnings ratio and 6.1 for the enterprise value to Ebitda ratio.
