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Should I buy BT while the share price is low and aim to sell high later?

Young female analyst working at her desk in the office

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At 103p (30 April) the BT (LSE: BT.A) The share price is near its low point. Is the stock a buy? Can it shoot even higher like before?

City analysts are divided. Some consider the telecom company a strong buy, while others think it is a buy. A few recommend holding the shares and at least three think it would be best to sell the shares.

Borrow maximum?

There are some challenges in the business. One of the biggest is the enormous pile of loans on the balance sheet.

Net debt was just under £11 billion in 2018, but the latest figure was £19.7 billion. That compares to a market capitalization of around £10.45 billion.

This means that net debt is almost twice as much as equity. For many industries, that borrowing level would be high. However, BT has significant asset backing due to its telecommunications infrastructure.

The profits cover about three times the company’s interest expense. However, it appears that net profit and earnings per share will be lower in the current trading year to March 2025. If this trend continues, debt levels could become problematic.

Investing in profit growth

Meanwhile, BT’s share price has fallen here before. In 2009, interest rates were well below 100 cents, before rising to just under 500 cents in 2015. The question is: can it repeat this trick and give shareholders a multi-pocket investment again?

Maybe. One of the reasons for the increasing debt burden is that the company has invested billions in the business. The reason for doing that is to drive sales, cash flow and profit growth.

New CEO Alison Kirby said in February that the company has “upgraded” the company’s entire fiber and 5G networks and attracted new customers. Previous investments in that infrastructure had just yielded results “another” quarterly growth in sales and earnings before interest, taxes, depreciation and amortization (EBITDA).

However, the cynic in me knows that companies tend to focus on EBITDA, while there isn’t much to say about earnings per share.

Meanwhile, net debt rose 4.2% in the nine months to December 2023 from the £18.9 billion reported on March 31, 2023. The company explained the increase as follows: “mainly” contributions to the pension scheme.

It looks like finances will improve in the future

There are some positive signs. For example, the pension scheme for employees will probably be fully funded by 2030. Between now and then the company wants to contribute around £600 million a year to fund the deficit. However, there is now an end in sight for the continued flow of money.

Meanwhile, the full fiber broadband offer is already available to more than a third of households and businesses in Britain. This indicates that the need for capital investment in the system will decrease in the coming years.

Additionally, the company reported lower capital expenditures of 11% last November, with smaller expenditures on fixed networks due to lower fiber-to-the-premises (FTTP) construction costs.

If these money-consuming costs continue to decline – and if customer adoption grows – we can expect to see improving profitability and a rising stock price. Although positive results are never certain.

Nevertheless, the old adage in the stock market is “buy high, sell low.” On that basis, BT now certainly seems worth further investigation and consideration.