Two of the world’s richest men, global magnates with a keen eye for deals, have bought a stake in telecoms giant BT.
Should you follow their lead and buy shares in this £13.87 billion group?
In addition to its traditional businesses, BT also owns EE, the UK’s largest mobile operator, and Openreach, which operates the country’s digital networks.
Last week, Indian billionaire Sunil Bharti Mittal became the owner of a 24.5 percent stake.
He took over the company from his friend, the French entrepreneur Patrick Drahi, who was forced to sell his company in Altice due to the enormous debt burden.
Billionaire Sunil Bharti Mittal Mittal sees his stake in BT as a long-term investment
Mittal, 66, lives mainly in London; other interests in his £13bn Bharti Global family empire include other telecoms companies and the Gleneagles hotel.
Mittal sees his share of BT as a long-term investment, and according to Karen Egan of Enders Analysis, he will be ‘fully constructive and cooperative with BT’.
This also appears to be the position of Carlos Slim, the Mexican billionaire who emerged earlier this summer as a holder of 3.2 percent of BT.
The 80-year-old Slim built his fortune in the telecom sector, but also in aviation, energy, manufacturing and retail.
Like Mittal, Slim enjoys negotiating.
That’s one way to describe BT shares at the moment. One analyst has even described them as “incredibly cheap.”
The surprise arrival of the clever Mittal sent BT shares soaring last week.
Today they hit back at the news that television company Sky plans to offer its broadband services on CityFibre’s network, rather than BT’s Openreach.
This was unwelcome news for BT as an existing partner of Sky, but analysts believe the financial impact on the telecoms giant is manageable and that Sky will continue to maintain a relationship with Openreach.
Even taking into account the fall in Sky news, BT shares were still up almost 20 percent on a year ago.
Today they closed down 6.4%, or 9.3p, at 136.3p.
This general upward movement reflects a degree of relief at Mittal’s intervention. Matt Dorset of Quilter Cheviot explained that Drahi’s stake had become a burden on the shares. There was some concern that he would be forced into a fire sale, which could send the shares into a rapid decline.
In May, Alison Kirby revealed details of an overhaul of BT, plus a dividend hike
Dorset noted: ‘This is another sign that a large long-term investor sees value in BT.’ Susannah Streeter of investment platform Hargreaves Lansdown agreed, saying Mittal’s move showed there was ‘long-term untapped value in the group’. Egan argued it was ‘strong validation of the company’s prospects and strategy’.
The share rally will come as a significant 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 stocks peaked in 1999, just before the dotcom boom. They are now down a painful 90 percent from then.
But can the shares still make a comeback? Should you become a BT shareholder now, alongside the tycoons and also the German giant Deutsche Telekom which has a 12 percent stake in BT?
The latest edition of Bank of America’s highly influential survey of fund managers shows that investment professionals are very interested in the UK stock markets. This wave of positive sentiment should give BT a boost.
But the shares also appear set to rise for other reasons, including optimism surrounding BT’s new CEO, the outspoken mother of two Allison Kirkby, a veteran of the telecoms sector.
This week she described Mittal’s arrival as “a huge vote of confidence in the future of BT Group and our strategy.” Mittal has called on BT’s management to be “bolder” – which is exactly what Kirkby plans to be as she seeks to reshape and revitalise BT.
In recent years, telecoms companies have been forced to continually upgrade their infrastructure or lose out to rivals. BT has spent huge amounts of money building 4G and 5G infrastructure and installing full fibre broadband.
Telecom companies also struggle with high debt and unclear corporate structures, problems exacerbated by rising inflation.
Kirkby has embarked on a major cost-cutting programme. Around half of BT’s 130,000 staff will be made redundant, with around 10,000 replaced by AI (artificial intelligence). BT has achieved a target to cut costs by £3bn by 2025, a year early.
The company now aims to save a further £3bn a year by the end of 2029 by modernising processes and closing old networks.
As a result of this plan, VSA Capital CEO Andrew Monk claims the group has huge growth potential, calling BT “a deeply misunderstood stock.”
As the turnaround programme continues, BT could also benefit from government policy. Chancellor Rachel Reeves is leading a planning revolution that will see the delivery of 1.5 million homes over the next five years.
Dorset points out that these new flats and houses need broadband and could cement BT’s status as Britain’s ‘largest provider’. The decline in housebuilding has cost Openreach revenue in the area, as the division’s CEO, Clive Selley, confirmed in late 2023.
But despite these odds, anyone considering taking a gamble on BT now must recognise the challenge ahead for the brave Kirkby. And be prepared to be patient.
Drahi may have been forced to take leave because of his debts.
Still, Deutsche Bank analyst Robert Grindle points out that the highly experienced Drahi may have concluded that there is “no path to value realization” — that is, no way to make money on his investment in a reasonable time frame.
Drahi’s relationship with BT was an expensive one. He spent £4.17 billion, but may have come out with just £3.18 billion.
Other analysts are much more optimistic about BT’s prospects, with 15 of those covering the stock giving it a ‘buy’ rating. Another three give it a ‘hold’ rating, while two say it is a ‘sell’ rating. The average ‘target’ price – where the shares could rise to – is 195p; the highest is 290p.
Kirkby seems determined to defy the sceptics. In May, she unveiled the details of her overhaul, plus a dividend hike. This gave the shares a boost – to the dismay of hedge funds that had been ‘short’ the stock, that is, betting on a fall in the price.
Kirkby said of this: ‘I always like to get people into trouble… and prove them wrong.’
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