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How high can the BT share price go?

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With the FTSE 100 index down 5% in 2022, it is a challenge to find shares that are in the green this year. However, the BT (LSE:BT.A) share price is a rare exception with it up over 10% this year. I question if this growth looks set to continue and whether its shares merit a place in my portfolio.

A defensive nature

BT is positioned well to fight against the threat of inflation. It has a strong existing infrastructure position, meaning it doesn’t have to rent from third parties. Alongside this, as the working world has been shifted increasingly online, broadband access is becoming a necessity for the UK population. This will allow the company to retain customers even as inflation climbs. This defensive nature has allowed the BT share price to be relatively unaffected by the threat of inflation.

In addition, I find the new joint venture with Warner Brothers Discovery particularly exciting. This will bring the two TV rights portfolios of both companies together to create one cohesive sporting hub. It is expected that this will encourage more customers to take out a subscription in BT Sport.

Strong fundamentals?

Despite seeing total revenues decreasing in the last year, BT has been able to increase profits through various cost-cutting measures. Profit subsequently rose 8.8% in the last year.

Despite this, I have some serious concerns about BT’s debt load. The company currently holds a hefty £22.8bn in debt. And with only £777m in cash and cash equivalents, it is not a debt sum that can be brought down easily.

With high and growing interest rates, this debt will likely become increasingly more expensive to finance. Therefore, I am expecting future cash to be funnelled towards financing activities instead of going into the hands of shareholders.

Primed for growth?

For a company that is already serving over 30 million customers worldwide, it would be easy to assume that there are limited future growth opportunities. However, the 5G rollout has provided these opportunities. This year, BT revealed that its networks cover 50% of the UK with 5G access. This is set to rise to 90% of the UK in 2028. As a result, the company has grown the number of customers connected to the 5G network by 231% in the last year.

While I am expecting this growth to slow, it is clear that there remain areas of the market that BT can still capture despite its huge existing customer size.

Overall, I believe the BT share price has room to grow over the next few years. While the high debt is a concern, I believe the company’s current customer base and successful 5G programme overshadows this concern.

This being said, I wouldn’t be buying this share expecting it to double in value to 400p. The defensive nature of this stock adds stability to my portfolio, not unprecedented growth. This stability is why I am seriously considering giving BT shares a place in my portfolio.

The post How high can the BT share price go? appeared first on The Motley Fool UK.

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Finlay Blair 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.