Two of the world’s richest men, global tycoons with a keen eye for business, have bought a stake in telecoms giant BT.
Should you follow their example and buy shares in this £13.87 billion group?
In addition to its traditional business, BT also owns EE, Britain’s largest mobile operator, and Openreach, which runs the country’s digital networks.
Last week, Indian billionaire Sunil Bharti Mittal became the owner of a 24.5 percent stake.
He bought the stake from his friend, French businessman Patrick Drahi, who appears to have been forced to sell due to the mountain of debts of his business in Altice.
Billionaire Sunil Bharti Mittal Mittal sees his stake in BT as a long-term investment
Mittal, 66, is based mostly in London; the other interests of his £13bn Bharti Global family empire include other telecoms businesses and the Gleneagles hotel.
Mittal sees his stake in BT as a long-term investment. Indeed, according to Karen Egan of Enders Analysis, he will be “fully constructive and collaborative with BT”.
For the moment, at least, this also appears to be the position of Carlos Slim, the Mexican billionaire who emerged earlier this summer as the owner of 3.2 percent of BT.
The octogenarian Slim built his fortune in telecommunications, but also in aviation, energy, manufacturing and retail.
Like Mittal, Slim loves nothing more than a bargain.
That’s one way to describe BT’s stock at the moment. One analyst has even described it as “incredibly cheap”.
Mittal’s arrival sent BT shares up 10 percent.
The price, at 143 pence, is now 14 per cent higher than at the start of the year and up 25 per cent in 12 months.
The move up reflects some relief at Mittal’s intervention. Matt Dorset of Quilter Cheviot said Drahi’s involvement had become a drag on the stock. There was some apprehension that he would be forced into an emergency sale that could have sent the stock tumbling rapidly.
In May, Alison Kirby revealed details of a restructuring of BT, as well as an increase in dividends.
Dorset said: “This is another sign that a strong long-term investor sees value in BT.” Susannah Streeter of investment platform Hargreaves Lansdown agrees, saying Mittal’s acquisition shows there is “untapped long-term value in the group.” Egan says it is “a strong validation of the company’s prospects and strategy.”
The recovery of the shares will come as a considerable relief to BT’s long-suffering army of 640,000 small shareholders, the vast majority of whom have remained loyal to the company since the 1984 privatisation of the state-owned monopoly, then known as British Telecom.
The stock peaked in 1999, just before the dot-com boom. It is now a painful 90 percent below its value at that time.
But can the stock continue to rally? Should you become a BT shareholder, alongside the tycoons and also German giant Deutsche Telekom, which owns a 12 per cent stake in BT?
The latest issue of Bank of America’s influential fund manager survey indicates that investment professionals are very interested in UK stock markets and this wave of positive sentiment should give BT a boost.
But the stock also looks set to rise for other reasons, not least the optimism surrounding BT’s new chief executive, Allison Kirkby, a plain-spoken mother of two and telecoms industry veteran.
This week, he described Mittal’s arrival as “a huge 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 aims to be in his effort to reshape and revitalise BT.
In recent years, telecoms companies have been forced to continually upgrade their infrastructure to keep up with their rivals. BT has incurred huge expenditure to build 4G and 5G infrastructure and install fibre optic broadband.
Telecoms companies have also had to deal with high debt levels and sprawling corporate structures, problems that have been exacerbated by rising inflation.
Kirkby has embarked on a wide-ranging cost-cutting programme. About half of BT’s 130,000-strong workforce will be made redundant and around 10,000 replaced by AI (artificial intelligence). BT hit a £3bn cost-cutting target by 2025 a year early.
It now aims to save another £3bn a year until the end of 2029 by upgrading processes and closing old networks.
As a result of this plan, Andrew Monk, chief executive of VSA Capital, says the group has huge growth potential. Monk calls BT “a very misunderstood stock”.
As the recovery programme continues, BT could also benefit from government policy. Chancellor Rachel Reeves is orchestrating a planning revolution under which up to 1.5 million homes will be delivered over the next five years.
Dorset notes that these new flats and homes will need broadband and that could confirm BT’s status as Britain’s “number one provider”. The slump in housebuilding has deprived Openreach of sales in this area, as confirmed by the division’s chief executive Clive Selley at the end of 2023.
Yet despite these opportunities, anyone considering betting on BT now should recognise the depth of the challenge facing brave Kirkby and be prepared to be patient.
Drahi may have been forced to step down due to his debts.
However, Deutsche Bank analyst Robert Grindle notes that the seasoned Drahi may have decided there was “no path to value realization” – that is, a way to make money on his investment within a reasonable time frame.
Drahi’s relationship with BT was a costly affair. He spent £4.17bn, but may have walked away with just £3.18bn.
Other analysts are much more optimistic about BT’s prospects: 15 of those following the stock rate it a “buy”. Three others rate it 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 appears determined to defy the sceptics. In May it revealed details of its restructuring, as well as a dividend increase. This gave the stock a boost, to the dismay of hedge funds that had been “shorting” the shares – that is, betting that the price would fall.
Kirkby commented: ‘I always love to squeeze the shorts… and prove them wrong.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationships to affect our editorial independence.
(tags to translate)dailymail
