Even in a dry August, some corporate stories force their way through the parched earth. A rumoured takeover of BT Group is one of the weeds that persist, even if its only possible nutriment is hope. As BT’s share price has drifted lower, the logic of re-evaluating the group’s worth has merit. Yet both regulation and the need to appease BT’s pension plan trustees will prevent this idea from blossoming.
On Monday, BT’s share price climbed 5 per cent following reports that private equity groups had run the slide rule over the telecom group’s assets. Rightly so. BT shares touched 11-year lows last week. The group trades cheaply. Its enterprise value to ebitda ratio is 29 per cent below the average of European peers. City analysts think BT’s equity value could be worth up to half again as much as its current £1.07 share price.
However, BT suffers from pressures that many of its other peers do not. Since making peace with watchdog Ofcom, BT has begun to act as a dependable national champion, claims Jefferies. Via Openreach, the group has decided to accelerate its rollout of full-fibre internet to harder-to-reach parts of the country. Capital spending is due to approach £4.4bn by 2022, more than a third higher than 2017. To help pay for that, BT suspended the dividend for the first time in 36 years.
Would private equity owners toe the line so nicely? It seems unlikely. Whether those same investors could convince BT’s pension trustees that their members’ future incomes would be protected is another matter. The trustees will need assurance that BT can continue to cover its obligations. Otherwise they may well demand some compensating payment to the pension plan, adding to the offer price for BT. Do not expect BT’s largest shareholder Deutsche Telekom (which holds 12 per cent) to wade in with a bid. It has enough on its hands funding T-Mobile US’s $59bn acquisition of Sprint.
BT will offer value for those willing to wait for its plans to flower. For now, they remain locked behind high garden walls.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button ‘Add to myFT’, which appears at the top of this page above the headline
Get alerts on BT Group Plc when a new story is published