BT (LSE:BT.A) shares don’t like a good investment at first sight, but initial appearances can be misleading. In this case, however, I don’t think they are – I’m staying well 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 sceptical of the idea that there’s a long-term opportunity here.

What’s the opposite of a growth stock?

BT’s big problem is that it seems to be losing customers. It operates in three segments – Consumer, Business, and Openreach – all of which seem to be going backwards, according to its latest update. 

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

To the company’s credit, it has managed to do a good job of preventing this decline from showing up in its financial performance. It’s been increasing prices to existing customers to make up for lost ones.

The trouble is, I don’t think it can do this forever and this presents shareholders with a huge problem. Yet the company has another strategy available. It’s artificial intelligence.

AI — really?

In addition to increasing prices to limit revenue declines, BT is attempting to bring down its costs. Last month, it announced another 2,000 job cuts, with more to come by 2030.

It’s looking to replace some of these roles with artificial intelligence. While it’s almost certainly not the most exciting use of AI, it could help the company maintain its dividend for longer.

This might be a good idea, but it doesn’t particularly fill me with enthusiasm. Ultimately, it doesn’t change the fact that the long-term outlook for the business appears to be one of decline.

At the right price though, even a declining business can be a good investment. And a look beneath the surface reveals some potential value in BT shares. 

Is Openreach hidden value?

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

Arguably, a business generating that much in operating income – and growing – is worth £14.7bn by itself. And that’s BT’s entire market cap. 

Investors might think that Openreach is worth the current share price by itself. Never mind the declines in the other divisions – they’re essentially free anyway.

Unfortunately, those buying BT shares aren’t just paying the equivalent of £14.7bn. They’re investing in a company with over £20bn in net debt and that makes the equation much less attractive.

Not for me

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

The average analyst price target for the stock is around £1.90. But even at a 25% discount to that, there are several opportunities I prefer for my portfolio.