Up 38% in a year, is the BT share price still attractive?

To say that BT (LSE: BT.A) has put in a mixed performance over the decades is putting it lightly. Even now, the BT share price is not even a quarter of what it was in the dotcom boom over a quarter of a century ago.

Still, recent performance has been encouraging. Indeed, over the past year alone, the share has leapt 38%. Even after that share price growth, BT offers a dividend yield of 3.9%. That puts it well above the FTSE 100 average.

Have I missed the boat – or could it still be worth me picking up some BT shares for my portfolio?

An uneven business

It might sound surprising for a long-established telecoms company to show such a strong price gain in just 12 months. After all, the sector is often seen as staid.

In reality though, it is not just the BT share price that has behaved unevenly over the years. Its business results have been all over the place.

Revenues have fallen in three of the past four years.

As BT is in a mature industry and to some extent has been trying to prioritise profitability over growth, that is not a big surprise – but it is still concerning to me when I look at a company as a potential investor and its revenues are broadly moving downhill over time.

Meanwhile, last year’s net profit of £1bn was better than the year before – but paled in comparison to the £1.9bn achieved just two years earlier.

A legacy business and it shows

There is a reason for this. BT basically has the pros and cons of a legacy business.

The pros include a large pool of customers, wide asset base, well-known (if not necessarily universally loved) brand and deep expertise.

But there are cons too. In some ways BT has been slow to capitalise on some of the more exciting opportunities in its space, compared to nimbler, younger competitors.

Even in the Openreach operation that feels less shackled to the traditional BT business of decades ago, the company has had struggles. It reckons that there was a loss of around 850,000 Openreach broadband lines last year. That suggests to me that its value proposition is struggling to stay relevant in a competitive market.

The business is also lumbered with pension obligations dating back decades. Those can move up and down and so BT sometimes has to set aside another tranche of cash to fill potential gaps in the pension funding. I see a risk that that could happen again in future.

Why I won’t buy

In fact, those pension obligations alone put me off buying BT shares for my portfolio. I do not like the fact that they could yet add billions of pounds in obligations to the company’s balance sheet.

I also do not think the current BT share price-to earnings (P/E) ratio of 22 is very attractive.

As I said above, BT’s earnings tend to move around. Even if they just recover to where they were several years ago, the prospective P/E ratio becomes more attractive.

On that basis, if the business performs well, then I do see potential for the share price to move even higher from here. 

But, given the risks, I will not be investing.