Motorways emptied when global coronavirus lockdowns began but broadband routes were busier than ever, carrying Zoom calls and Netflix films to shut-in households. In full-year results published on Thursday, BT Group promised to build more of these connections using its independent Openreach unit. Surprisingly, this decision comes without another strong push from local watchdog Ofcom. Yet BT also decided to suspend its dividend, giving no earnings guidance. Having hung on for so long, its market value has shed 80 per cent in five years, shareholders will rightly wonder what is the point of owning BT.
The cut seems unnecessary but the company’s results pointed to a few problems. Earnings themselves were in line with analysts’ consensus. Yet even if ebitda of £7.5bn for the full year lifted the margin to 33 per cent, an underlying deterioration of operating profitability continued last year. What good is focusing on cash flow when so little of it stems from profits? The after tax proportion has slipped to 28 per cent, according to S&P Global data, the lowest in a decade.
BT has consistently produced enough cash flow in the past to cover investments and dividend payments. This time it clearly decided a lane change was necessary. BT’s newish chief executive Philip Jansen may have hoped that announcing a major fibre broadband build out, the plan is to have nearly eight times the current premises connected by the second half of this decade, would please the market. Instead, there was confusion. BT usually avoids promising too much without a forcible push from Ofcom. Certainly, Mr Jansen’s predecessor Gavin Patterson was not keen on listening to the regulator.
BT’s decision to suspend the dividend and reset it lower in 2021 has dismayed the City. One analyst even published an apology to clients for not foreseeing the move. That explains a share price collapse of over 9 per cent. A mid-teens yield did suggest a cut was coming, but not a full suspension. An estimated additional 2m of fibre connections planned for this year should not severely test BT’s cash flow. The cost of perhaps £800m was probably already in capital spending forward estimates of just over £4bn annually.
All this bad news leaves shareholders stranded by the side of the road. Suspension of both the payout and profit guidance by such a conservative group reinforces the feeling that BT is at best a cheaply valued dead end for investors.
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