Broker puts BT on hold over fears for dividend
There’s a £1bn question hanging over the future of BT, which has prompted a leading City broker to downgrade shares in the telecoms giant.
Analysts at Berenberg, whose research appears to go down well with fund managers, have raised concerns over the sustainability of the dividend.
The phone lines and broadband giant generates around £2.5bn in free cash, giving it more than enough to support its current payout, which cost around £1.5bn last year. The tranche left – £1bn – is earmarked to support the hefty BT pension deficit, to buy mobile phone spectrum, and buy back employee share options.
That doesn’t leave a lot of headroom for new boss Philip Jansen if he wants to invest in the business. Put another way, the dividend could come under pressure if he wants to push the boat out.
The prospective yield on BT shares is around 6.8pc, which makes it a staple of funds and portfolios of private investors seeking a reliable income stream. The BT board has committed to a 15.4p dividend for the current financial year and next.
‘We believe that Mr Jansen may signal that, given the strategic importance and growth created by fibre-to-the-premise, he will prioritise investment and signal a cut to the dividend from 2020/21,’ said Berenberg. It is forecasting a 30pc reduction to 10.8p and also downgraded its stance on the shares to ‘hold’, with a 260p share price target. BT shares fell 3.3pc, or 7.4p, to 220p yesterday. Turning to the mining sector,
Fresnillo achieved record annual silver production of 61.8m ounces in 2018 as well as gold production of 923,000 ounces, but it wasn’t enough to placate an unforgiving market, which expected more – the company had hoped to hit 65m ounces of silver.
shares in the Mexico-focused firm fell 8.3pc, or 81.4p, to 894.6p.
The FTSE 100 slumped 32.62 points, or 1pc, to 7151.12 after the pound surged on news that Theresa May would offer MPs a vote on ruling out a no-deal Brexit and extending the UK’s departure date past March 29.
City Index analyst Ken Odeluga said sterling’s boost demonstrated the market was convinced a softer Brexit is on firmer ground but warned that there could be an ‘overestimation of momentum and perhaps an underestimation of remaining risks’.
‘A delayed Brexit does not equal a cancelled Brexit,’ he added.
A big slider in the blue-chips was British Airways and Iberia owner
IAG, down 4.3pc, or 28p, to 617p after stock market data provider MsCI announced plans to delete it from its spanish Ibex 35 index.
It is understood to be because of a cap on the ownership of shares by non-eU persons, which came into force ahead of Brexit.
There was better news lower down in the FTse 250 as property investor Derwent London hiked its dividend by 10pc after achieving earnings growth in 2018 despite ongoing uncertainty in the London office market, sending shares up 0.8pc, or 25p, to 3288p. Among the small caps, Springfield Properties rose 2.9pc, or 3.5p, to 124.5p after an 38pc rise in firsthalf revenue. remote tracking specialist Starcom was also shining after a new range of electric motorcycles using its helios technology was launched, lifting shares up 7.1pc, or 0.1p to 1.5p.
But there were headaches for gas firm Serinus Energy, which sank 2p, or 13.1pc, to 13.25p after equipment for a project in romania was missing components and was not set up properly.