Investors shrug off BT nationalisation threat and Kier still not out of the danger zone

Friday, November 15, 2019 - 10:15

“Investors continue to hang onto every word associated with the US/China trade war. White House economic adviser Larry Kudlow reportedly said that current negotiations between the two countries are ‘very constructive’, which was enough to drive stock markets up across the UK, mainland Europe and most of Asia.

“On the FTSE 100, miners Rio Tinto, Glencore and Anglo American led the charge, supported by gains from big oil producers BP and Royal Dutch Shell,” says Russ Mould, Investment Director at AJ Bell.

BT

“The threat of nationalisation, which has loomed over different parts of the market since Labour’s policies have moved in that direction in recent years, now hangs over telecoms firm BT.

“The company joins a list of stocks, which includes infrastructure funds, transport firms and utilities, whose fortunes are now tied up with what happens on 12 December.

“The plan is to take the infrastructure bit of BT, Openreach, plus a few other bits of the business under state control. In combination with increased taxes on tech firms to fund investment in the broadband network, this is intended to deliver on a bold pledge of free broadband for all.

“The relatively muted share price response likely reflects investors’ scepticism about the plan getting off the ground. Current polling suggests Labour is unlikely to win a majority in the looming election, however if the party was to enjoy a late surge in the polls, BT shareholders might start to get a little bit more nervous.

“There is also a risk that Labour’s idea proves popular with voters and other parties feel compelled to move at least some way in this direction.

“This would be another headache the company doesn’t need as it also contends with questions over its dividend policy as well as the pressures of its existing investment in fibre broadband and 5G mobile.”

Kier

Kier is trying to do everything it can to turn its fortunes around. There are enough positives in its latest trading update to drive the shares up, but there are still lingering concerns that this is not going to be an easy recovery.

“Media reports that its lenders are trying to offload Kier loans for as little as 70p in the pound would suggest they are trying to get out quick in case the business is unsuccessful with its recovery efforts.

“Kier is busy slashing jobs, outsourcing various activities such as IT, moving offices and selling its housebuilding division. These efforts could give it some breathing space but there is still a very large mountain to climb to repair its balance sheet and also its reputation.

“Nonetheless, there are some signs that sentiment is starting to improve towards the business. The percentage of shares on loan to short-sellers – people hoping to profit from a decline in the share price – has halved since April.

“There is an argument to suggest that Kier’s backdrop is looking more promising with expectations for greater government spending on infrastructure. Yet management are currently distracted from chasing opportunities by trying to keep the business afloat.

“Investors were let down by sector peers Carillion and Interserve. No-one wants Kier to go the same way but such concerns will linger until the business can get the debt under control and stop sinking into the quicksand.”

These articles are for information purposes only and are not a personal recommendation or advice. 


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.