Is the BT share price a top FTSE 100 bargain buy?

Of course, success depends on whether the business has the wherewithal to recover from its troubles. The last thing you want to be doing is buying into a company that’s in terminal decline. With this in mind, I’m looking today at the outlook for unloved FTSE 100 stock BT (LSE: BT-A). I’ll come back to the telecoms giant shortly, after looking at a smaller company that’s already in recovery mode.

Isolated incident UK leader in connected healthcare software and services Emis (LSE: EMIS) saw its shares crash from over 1,000p at the end of last year to a low of near 700p in February. This followed a review by the group’s new chief executive that identified a failure to meet certain service levels and reporting obligations relating its web product for GPs.

However, the shares began to recover after the company’s annual results in March. By then, the failures relating to the GP product looked very much like an isolated incident. Half-year results announced this morning have sent the shares 3% higher to 941p, as I’m writing.

Positive outlook The company said it expects the settlement relating to the GP product will be within the £11.2m provision it announced in March. Meanwhile, an encouraging first-half performance saw net cash on the balance sheet at the period end of £32.3m, up from £14m at the end of December.

I’ve been impressed by the new chief executive and reckon the changes he’s made, including a strengthening of the senior leadership team, bode well for the future. As such, and with the perennial need of the NHS to manage costs and improve efficiency, I continue to rate the stock a ‘buy’. That’s despite a relatively high current-year forecast price-to-earnings (P/E) ratio of 20.7, and a fairly modest dividend yield of 2.9%.

Bargain buy? The BT share price hit multi-year lows of not much above 200p earlier in the summer, and it remains relatively depressed at sub-220p. This gives a current-year forecast P/E of just 8.3, with a huge prospective 7% dividend yield.

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My Foolish colleague Alan Oscroft recently wrote about some of the key issues facing BT . He identified net debt, a pension deficit and a wobbly-looking TV sports strategy. I view a net debt/equity ratio of 0.93 as not too scary, while the pension deficit should start to fall under an agreed payment plan. Now-rising interest rates are also likely to be helpful. Having said that, the financial position isn’t ideal and I wouldn’t be surprised to see the dividend reduced, if not in this financial year, then in the next.

Turning to the group’s businesses, I remain convinced BT has scale and competitive advantages in key areas that can drive a recovery under the right management. With this in mind, I view the installing of a new chairman late last year and the upcoming replacement of the chief executive this year in a positive light. I think BT might just prove to be a bargain buy at the current share price.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Emis Group and Tesco. 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.