Net gains at BT as dividends back on horizon
THE internet is an essential service, so even during a pandemic most of BT’s key revenue engines kept humming along. However, the dividend was suspended, and when it returns next year it will be much smaller than in the past – 7.7p per share, implying a yield of 4.7 per cent as I write.
Clearly, BT was not immune to Covid. BT Sport suffered when games were cancelled, and couldn’t really recover without pubs reopening. The pandemic impacted many smaller corporate customers, and shop closures meant equipment sales suffered too.
Despite this, underlying revenue only fell 6 per cent in the last year. That isn’t nothing but it could have been a lot worse and highlights the reliability of demand. This means we need to look forward at BT’s plans to profit from the rollout of fibre broadband and 5G.
Its current thinking involves significant modernisation and simplification.
This includes digitising customer journeys and moving them onto new 5G and fibre broadband networks, with lower running costs than legacy infrastructure. Management aim to cut costs by around £1billion per year by 2023, rising to £2billion from 2025.
Substantial improvements, however, aren’t free and constant investment comes with the territory. Delivering attractive margins in the telecoms industry is inherently difficult.
Another drain on cash is BT’s large pension deficit. The new payment plan will cost hundreds of millions a year for most of the next decade. We see that trend continuing. Add to that the debt pile, which cost £770million in interest payments last year, and the demands on cash are considerable.
BT has its attractions. Its mobile networks are broad and generally high quality, while Openreach is unique and higher margin. And BT Sport offers something customers can’t get elsewhere. But while BT is a strong player, it’s in a really tough industry. It needs to leverage all of its advantages if it is to satisfy the never-ending investment demands and return to dividend growth.
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