BT Group shares: bull vs bear

Bullish: Roland Head

It’s been a roller-coaster year for shareholders in BT Group (LSE:BT.A), but I think shares in the telecoms group looks like an attractive investment at the moment. Here’s why.

BT has faced some challenges in recent years, but I believe the group now has a clear plan that will deliver more consistent results in the future. The company is investing in its fibre and 5G networks. It’s also reached a new agreement with its main staff union, reducing the risk of industrial action.

I reckon these plans will ensure that BT remains the UK’s largest mobile and broadband provider. I’m always attracted to businesses with a leading market share, as they tend to enjoy economies of scale and strong brands. I think both apply to BT.

I’m also pleased to see from press reports that CEO Philip Jansen appears to be trying to sell BT Sport. I’ve always seen this television business as an expensive distraction from the company’s core job of providing high-quality broadband and mobile services.

Finally, I think BT could benefit if interest rates rise. One of the group’s biggest problems is its monster £8bn pension deficit. Higher interest rates should mean that the income (yield) available from government bonds increases. This should reduce BT’s pension deficit, as higher bond yields make it easier to generate income to fund pensions.

BT’s recent share price slide has left the stock trading on just seven times forecast earnings, with a 5.5% dividend yield. That looks cheap to me. I’d be happy to buy BT shares today for their income and recovery potential.

Roland has no position in any of the shares mentioned.

Bearish: Royston Wild

The BT share price has been in freefall for several months now. It just tipped to its cheapest since mid-March below 140p per share. And I think there are good reasons to expect it to keep falling too. 

Competition in Britain’s broadband market is intense. Revenues have been steadily declining at BT as its customers have taken their business elsewhere and the company has had to slash prices to compete. The telecoms titan is struggling to stop the rot — latest financials showed turnover slip 3% in the three months to June — and things threaten to get even tougher. Ofcom is also scheduled to introduce One Touch Switch in 2023, a service that’s designed to help consumers change supplier more easily. 

BT doesn’t just face colossal competition across its retail operations, either. Rumours abound that Sky is linking up with Virgin Media O2 to roll full-fibre broadband out across the UK. It’s a direct shot across the bows of BT’s Openreach division, the most profitable part of the company. 

There also remains huge uncertainty over BT’s strategic direction as the boardroom merry-go-round continues turning. Former Royal Mail and ITV chief executive Adam Crozier is set to replace Jan du Plessis as chairman at the end of the year, it was announced in August. 

And finally, BT’s problematic pension deficit is still hanging over its head. This has fallen significantly in recent times, to £4.6bn as of June from closer to £8bn a year earlier. But this remains a significant figure that still casts a pall over future dividends.

Royston has no position in any of the shares mentioned.

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