Why it might be the fitting time to wager on BT

Two of the world’s richest men, global tycoons with a sharp eye for a deal, have bought themselves a slice of telecoms giant BT.

Should you take their cue, and buy shares in this £13.87bn group?

As well as its traditional business, BT also owns EE, Britain’s largest mobile operator and Openreach which runs the nation’s digital networks.

Last week the Indian billionaire Sunil Bharti Mittal became the owner of a 24.5 per cent stake.

He acquired the holding from his friend, French entrepreneur Patrick Drahi – who seems to have been forced to sell because of the debt mountain at his Altice business.

The other interests of 66-year-old Mittal’s £13bn Bharti Global family empire include other telecoms businesses and the Gleneagles hotel.

Mittal views his chunk of BT as a long-term investment. Indeed in the view of Karen Egan of Enders Analysis, he will be ‘completely constructive and collaborative with BT’.

For the moment at least, this also appears to be the stance of Carlos Slim, the Mexican billionaire, who emerged earlier in the summer as the holder of 3.2 per cent of BT.

Octogenarian Slim built his fortune on telecoms but also on aviation, energy, manufacturing and retail.

Like Mittal, Slim loves nothing more than bargain.

That is one way to describe BT shares at present. One analyst has even described them as ‘incredibly cheap’.

The surprise arrival on the scene of the sagacious Mittal sent BT shares leaping last week. 

They fell back today on the news that TV company Sky plans to launch its broadband services on CityFibre’s network, rather than BT’s Openreach. 

This was unwelcome news for BT as Sky’s existing partner. However, analysts believe the financial impact on the telecoms giant is manageable and that Sky will continue to have a relationship with Openreach.

Even accounting for the fall on the Sky news, BT shares were still nearly 20pc higher than a year ago. 

Today they closed down 6.4pc, or 9.3p, at 136.3p.

This generally upward move reflects a measure of relief over Mittal’s intervention. Matt Dorset of Quilter Cheviot explained that Drahi’s stake had become a drag on the shares. There was some apprehension that he would be forced into an emergency sell off which could have sent the shares into a rapid descent.

Dorset commented: ‘This is another sign of a large long-term investor seeing value in BT.’ Susannah Streeter of investment platform Hargreaves Lansdown concurs, saying that Mittal’s swoop shows there is ‘long-term untapped value in the group’. Egan argues that it is ‘a strong validation of the company’s prospects and strategy’.

The revival in the shares will come as a considerable relief to BT’s long-suffering 640,000 strong army of small shareholders. The vast majority have stayed faithful to the company since the privatisation in 1984 of the state monopoly, then known as British Telecom.

The shares peaked in 1999, just before the dot.com boom. They are now a painful 90 per cent lower than at that time.

But can the shares continue to stage a comeback? Should you now become a BT shareholder, alongside the tycoons and also German titan Deutsche Telekom which has a 12 per cent stake in BT?

The latest issue of the hugely influential Bank of America fund managers’ survey indicates that investment professionals are very keen on the UK stock markets and this wave of positive sentiment should give a boost to BT.

But the shares also seem poised to climb for other reasons, including as the optimism surrounding BT’s new-ish chief executive, the plain-speaking mother-of-two Allison Kirkby, a telecoms industry veteran.

This week she described Mittal’s arrival as ‘a great vote of confidence in the future of BT Group and our strategy.’ Mittal has urged BT’s management to be ‘bolder’ – which is exactly what Kirkby intends to be as she strives to reshape and revitalise BT.

In recent years, telecoms companies have been compelled continuously to update their infrastructure or lose out to rivals. BT has incurred vast expenditure on building out 4G and 5G infrastructure and installing full-fibre broadband.

Telecoms businesses have also struggled with high levels of debt and sprawling corporate structures; problems exacerbated by soaring inflation.

Kirkby has embarked on an extensive cost-cutting programme. About half of BT’s 130,000-strong workforce will be axed, with some 10,000 being replaced by AI (artificial intelligence). BT hit a target to reduce costs £3bn by 2025 a year early.

It now aims to save another £3bn-a year by the end of 2029 by updating processes and shutting down old networks.

As a result of this plan, Andrew Monk, chief executive of VSA Capital, contends that the group has huge potential for growth. Monk calls BT ‘a very misunderstood stock’.

As the turnaround programme continues, BT could also be a beneficiary of government policy. Chancellor Rachel Reeves is mounting a planning revolution under which as many as 1.5million homes will be delivered over the next five years.

Dorset points out that these new flats and houses will need broadband and that could affirm BT’s status as Britain’s ‘number one provider.’ The housebuilding slump has deprived Openreach of sales in this area, as the division’s chief executive Clive Selley confirmed at the end of 2023.

However, despite these opportunities, anyone contemplating taking a bet now on BT should acknowledge the depth of the challenge facing the doughty Kirkby – and be prepared to be patient.

Drahi may have been compelled to take his leave due to his debts.

Nevertheless Deutsche Bank analyst Robert Grindle points out that the hugely experienced Drahi may have decided that there was ‘no route to value realisation’, that is, a way to make money from his investment within a reasonable time frame.

Drahi’s relationship with BT was an expensive excursion. He splashed out £4.17bn but may have exited with just £3.18bn.

Other analysts are a lot more upbeat about BT’s prospects with 15 among those who follow the stock rating it a ‘buy’. Another three rate the stock a ‘hold’, while two say it is a ‘sell’. The average ‘target’ price – to which the shares could rise – is 195p; the highest is 290p.

Kirkby seems determined to defy the sceptics. In May she revealed of the details of her overhaul, plus an increase in the dividends. This gave the shares a lift – to the dismay of the hedge funds who had been ‘shorting’ the shares, that is, gambling on a decline in the price.

Kirkby commented: ‘I always love to squeeze the shorts…and prove them wrong.’