BT (LSE: BT.A) shares have been steadily rising since the start of the year, granting investors 16% year-to-date returns. What’s more, they’re risen over 10% in the past 30 days and over 50% in a year. This progress has solidified the telecommunications firm as one of the FTSE 100’s standout performers of 2022 so far.
With the shares climbing above 200p yesterday, could now be the perfect time to buy the stock for my portfolio? Let’s take a closer look.
Reasons to be excited
Earlier this month, BT announced it’s in the process of selling its Premier League rights to US streaming giant DAZN. Valued around the $800m mark, this deal could be great news for BT’s cash flows and investment prospects. These funds will likely be used to aid its fibre-optic broadband rollout, which BT has committed £15bn to over the next five years.
In addition to this, takeover rumours have been floating around for months now. The primary reason for this is the actions of billionaire Patrick Drahi. In June 2021, Drahi bought an unexpected £2.2bn worth of shares, taking a 12.1% stake in BT. He has since increased this stake to 18%, attracting significant takeover speculation. A successful takeover would likely boost BT shares, although as long-term investor, I would never buy purely on takeover speculation.
US private equity firm KKR has also shown interest in the European telecoms sector. Back in November 2021, it put in a €33bn offer for Telecom Italia. If US private equity attention is heating up, then it could trigger a bidding war over BT, which would massively drive up BT shares. This is a phenomenon we saw in mid-2021 with the CD&R takeover of Morrisons.
A final reason for excitement comes from bullish City analyst estimates, which predict that BT could generate £1.8bn in earnings for the fiscal year 2022. This shows an encouraging step forward from the £1.5bn generated in 2021. If such results do come to fruition, I would expect BT shares to keep rising.
Risks for BT shares
One large risk I see for BT shares is the high debt levels the firm operates with. Its commitment to rolling out fibre-optics could be a great long-term investment. However at present, it restricts BT from tending to its debt pile. Debts increased by a whopping £447m for the nine months to December, currently sitting at almost £13bn.
What’s more, with inflation rising, interest rates are also beginning to creep up. Rising borrowing rates are very bad news for a firm with such high debt.
Should I buy now?
Although rates are a risk for BT, inflation has been an issue for some time now, and the shares have continued to creep up. After all, trading at a P/E ratio of 10.5, the stock doesn’t seem expensive. Considering the encouraging share price growth and low valuation, I’d be happy to add BT shares to my portfolio today.
Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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