BT - 'Hanging on the Telephone'

BT: So much to moan about, such as their 100% owned Openreach being slow at fixing our phone and having to watch BT Sport over Broadband out in the sticks. But, stifling an ever so small yawn, what about the shares? Well these interims showed pre-tax profits up 16% to £1.1bn, despite a 2% slide in revenue to £8.74bn as cost cutting continued. Within the revenue line BT Consumer was up 7% whilst BT Global Services, Openreach, BT Business and BT Wholesale all slipped. The debt pile shrank from £8.07bn a year ago to £7.07bn. Pleasingly, the dividend rose 15% to 3.9p, on eps up 13%. 

Some of the main worries that investors tend to have is firstly that no-one, including the regulator, likes BT. Well that is not new and BT are adept at managing that relationship. Secondly they have a huge IAS19 pension deficit (£5.9bn at 30^th September 2014), but they chip away at it. The discount rate used in this quarter was down to an eye-watering record low of 0.82%, but during the quarter they did hedge away 25% of their longevity risk at no extra cash cost. The triennial valuation to 30^th June 2014 is in the post. Thirdly, BT Sport is a costly exercise in content acquisition. Maybe so, but they have made BSkyB sit up and take note. The BT Sports content costs will go up further, but the aim of securing the client base, as fibre broadband is rolled out, appears to be working.

Guidance from the company has been held. So  a possible 29.5p of eps for the year to 31^st March 2015 is a modest PE of 12.4x at a slightly soggy 365p (down 2.4% on Thursday’s results). If the full year dividend is up 15% (their target range is 10%-15% for 2014/15 and 2015/16) you get just over 12.5p for a yield of 3.4%. Maybe not enough to get the pulse racing, but on a reasonable PE rating with a healthy growing yield it looks like decent portfolio baseload for income growth investors. Also worth noting, is that so far this year BT has spent £197m on its share buyback programme and is on course for £300m for the financial year with a further £300m slated for the year after. (Neil Cumming, 3^rd November 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk