Over the past 12 months, the BT (LSE: BT.A) share price has charged higher by 51%. However, even after this performance, I think the stock looks cheap.
And it looks as if the French telecoms giant Altice agrees with me.
The BT share price opportunity
It seems to me as if investors have been buying shares in the telecommunications giant as it embarks on a massive growth plan. After years of underinvestment, the company’s now spending heavily on capital projects.
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Last month, the firm announced it was increasing its fibre broadband rollout target to 25m homes by 2026. This infrastructure investment programme is expected to cost £15bn.
Management has rightly admitted the company should have started this process years ago, before competitors began to take market share. Still, the fact the group is investing more is positive overall for the BT share price. It’s a strong sign that management wants to maintain the firm’s share of the market and is no longer complacent about its position.
France’s second biggest telecoms group, Altice, seems to support the company’s change of direction. Today it has emerged that the group, which is owned by French telecoms tycoon Patrick Drahi, has acquired a 12% stake in BT.
Mr Drahi said in a statement: “BT has a significant opportunity to upgrade and extend its full-fibre broadband network to bring substantial benefits to millions of households across the UK. We fully support the management’s strategy to deliver on this opportunity.“
Change in mentality
BT’s change in mentality couldn’t come soon enough. The group used to have a virtual monopoly over the UK’s telecommunications infrastructure. But the company’s lack of ambition over the past few years has allowed competitors to edge into the market.
These competitors come in all shapes and sizes. There’s the newly-combined Virgin Media O2, which plans to extend its fibre footprint by up to 8m premises. Then there’s Goldman Sachs-backed CityFibre, which is also planning to expand its network to 8m homes, and LetterOne, the investment group controlled by Russian billionaire Mikhail Fridman.
Sentiment towards the BT share price had been deteriorating in recent years as it looked as if the business would lose market share to these competitors. However, now the group’s fighting back, I think its outlook is improving.
What’s more, today, the stock is trading at an attractive-looking price-to-earnings multiple of 9.8.
Risks and challenges
That’s not to say the firm isn’t without its risks and challenges. For example, BT already has a lot of debt, and is having to work hard to find money to finance spending.
There’s been talk the group is looking for external parties to form joint ventures to fund its fibre network expansion. It’s also looking to find a partner, or sell a stake, in its BT Sport ops.
If it can’t find partners for either of these initiatives, the company may struggle to hit its targets. If that happens, competitors may gain an edge. In this scenario, BT’s growth would surely come in below expectations over the next few years.
Still, I think the company has a fighting chance of returning to growth. As such, after taking all of the above into account, and based on the valuation of the BT share price, I’d buy the stock of my portfolio today as a buy-and-hold investment.
