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Telco lays out plans to please regulator, pension trustees and shareholders
Thursday 07 Jun 2018 Author: Steven Frazer

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-to-the-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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