Why I’ll avoid BT shares like the plague in 2025

BT (LSE:BT.A) Stocks may not seem like a good investment at first glance, but first impressions can be misleading. In this case, however, I don’t think that’s the case – I’m staying away from this stock.

The company’s most promising division is Openreach. But while profits are growing in this part of the business, I’m skeptical about the idea that there’s a long-term opportunity here.

What is the opposite of a growth stock?

BT’s big problem is that it appears to be losing customers. The company operates in three segments – Consumer, Business and Openreach – all of which appear to be regressing, according to the latest update.

In the six months to September 30, BT lost 49,000 consumer broadband connections, 113,000 business connections and 377,000 Openreach connections. That sounds bad and it is.

The company is to be commended for managing to prevent this decline from being reflected in its financial performance. To compensate for lost customers, prices for existing customers were increased.

The problem is that I don’t think this can last forever and that poses a huge problem for shareholders. But the company has a different strategy. It’s artificial intelligence.

AI – really?

BT is not only trying to raise prices to limit falling sales, but also to reduce its costs. Last month, the company announced it would cut another 2,000 jobs, with more to be added by 2030.

Some of these roles are to be replaced by artificial intelligence. While this is almost certainly not the most exciting use of AI, it could help the company sustain its dividend for longer.

That might be a good idea, but it doesn’t particularly excite me. Ultimately, it doesn’t change the fact that the long-term prospects for the company appear to be declining.

However, with the right price, even a declining company can be a good investment. And looking beneath the surface reveals potential value in BT shares.

Is Openreach a hidden value?

Since 2019, Openreach’s operating profits have increased from £955m to £1.78bn. That’s impressive for almost any business – especially one that has lost customers over time.

A company that generates that much operating profit – and grows – is probably worth £14.7 billion on its own. And that’s BT’s total market capitalization.

Investors might think that Openreach is worth the current share price alone. Not to mention the drops in the other divisions – they’re essentially free anyway.

Unfortunately, those who buy BT shares aren’t just paying the equivalent of £14.7 billion. You are investing in a company with net debt of over £20 billion, which makes the equation significantly less attractive.

Not for me

Declining companies can sometimes have hidden value that management can unlock by divesting units or buying back shares. But I don’t see that with BT.

Analysts’ average price target for the stock is around £1.90. But even at a 25% discount, there are several options I prefer for my portfolio.