BT in charm offensive to get in­vestors back on­side

Telco lays out plans to please reg­u­la­tor, pen­sion trustees and share­hold­ers

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BT (BT.A) has launched a charm offensive to con­vince an­a­lysts and in­vestors that it can suc­cess­fully nav­i­gate the many fi­nan­cial and reg­u­la­tory chal­lenges it is fac­ing.

Last month the £20.5bn telco put div­i­dend growth on hold. In­come is one of the ma­jor rea­sons why share­hold­ers own the stock.

In re­cent years BT’s div­i­dend growth has been run­ning at dou­ble-dig­its, with the av­er­age an­nual pay­out in­crease be­tween 2013 and 2017 (year end to 31 March) work­ing out at close to 13%.

Now the pay­out is set to freeze for the fore­see­able fu­ture at 15.4p a year. That im­plies an for­ward in­come yield of close on 7.5% a year at the cur­rent 206.5p share price.

BT hopes this will pro­vide the fi­nan­cial lee­way so that the group can emerge a leaner, more agile busi­ness better suited to the needs of the digital fu­ture. Im­por­tantly, it also an­tic­i­pates that it will help get reg­u­la­tor Of­com on­side over Open­reach in­vest­ment.

Open­reach is BT’s na­tional tele­coms in­fra­struc­ture back­bone that it, and third party sup­pli­ers, ex­pect to use to pro­vide faster broad­band speeds across the UK.

In a ques­tion and an­swer ses­sion BT’s chief fi­nance of­fi­cer (CFO) Si­mon Lowth was ap­par­ently res­o­lute that a cut to fu­ture div­i­dends would not be nec­es­sary to clinch a ‘fair bet’ set­tle­ment with

the tele­coms watch­dog.

‘BT is adamant that a div­i­dend cut won’t be nec­es­sary,’ is what re­searchers at in­vest­ment bank Jef­feries came away telling clients.

An­a­lysts at Nu­mis Se­cu­ri­ties were sim­i­larly re­as­sured, with the bro­ker­age’s John Karidis say­ing he be­lieved that BT’s div­i­dend per share

‘is very safe’.

Bal­anc­ing the re­quire­ments of share­hold­ers, the reg­u­la­tor and pen­sion trustees re­mains BT’s biggest chal­lenge. The UK Govern­ment wants ‘full fi­bre’ roll­out across main­land Bri­tain by 2020, mean­ing that 95% of UK prop­er­ties can ac­cess in­ter­net con­nec­tion speeds of 24Mbps, with the rest guar­an­teed min­i­mum 10Mbps.

BT’s Lowth spelled out guid­ance for 3m fi­bre-tothe-premises (FTTP) con­nec­tions by 2020 as the ‘first phase’. Be­yond that the group is tar­get­ing an extra 1m con­nec­tions per year, a build rate that an­a­lysts largely agree is test­ing but ‘fea­si­ble’.

‘There is now con­fi­dence that de­ploy­ment be­yond 3m premises can de­liver ac­cept­able re­turns as a com­mer­cial in­vest­ment,’ say Jef­feries an­a­lysts.

An­a­lysts now seem largely op­ti­mistic and hope­ful regarding the BT in­vest­ment story, with 20 of the 22 that re­search the stock ei­ther ad­vis­ing in­vest­ment clients to ‘buy’ or ‘hold’ the shares. Only two re­main firmly rooted in the scep­tics’ camp with ‘sell’ rec­om­men­da­tions. (SF)

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