There is a mountain of information for BT (BT.A) investors to pile through on Thursday. Among the sweeping jobs cuts, massive strategy rethink, cost savings ambitions and new pension scheme funding deal are fairly complex fourth quarter and full year results to digest.
Cutting to the chase, shareholders are being asked to sacrifice income growth in the short-term so that the group can emerge a leaner, more agile business better suited to the needs of the digital future.
Shares flagged the possibility earlier this month, and has been pondering its likelihood for a while.
DIVIDEND SALAD DAYS OVER, FOR NOW
In recent years BT’s dividend growth has been running at double-digits. Between 2013 and 2017 (year end to 31 March) the average annual increase in the payout works out at close to 13%, and was 10% the year before last.
Source: BT
Now the payout is set to freeze for the foreseeable future at 15.4p a year. Yet the yield remains attractive, if it can be relied on.
Even at yesterday’s 238.6p close the stock would have implied a forward income yield of 6.45%, substantially above the 3.9% of the FTSE 100, according to FTSE Russell data.
Now, after today’s 8% collapse to 219.4p, the implied forward yield has nudged over 7%. Of course, that’s cold comfort for investors that bought shares at higher prices, say around 275p in January or close to 320p last August.
The question is, is this a sacrifice worth paying?
TOUGH DECISIONS NEEDED
Cutting 13,000 admin and middle management jobs and hiring 6,000 more relevant engineers etc makes sense since it should allow an accelerated fibre broadband rollout. Ditching an expensive London HQ in favour of 30 fit-for-purpose hubs is the kind of action BT shareholders have wanted to see for years.
Yet the £1.5bn of operating cost savings are ‘only a little more than the £1.2bn it splashed out on exclusive rights for Champions League and Europa League football a year ago,’ points out Russ Mould, investment director at trading platform AJ Bell.
Still, it could be argued that the sports content investment was worth it considering BT’s consumer arm has been its sole growth business for several years.
CLOCK TICKING FOR CEO
Too long a bloated, lumbering beast, BT’s recognition that it must become a ‘lean and agile’ organisation is long-overdue. It is dramatic, far-reaching and sensible, and arguably critical if the business is to compete with rivals who saw the future of a rapidly changing industry much quicker than BT did.
But the pressure has intensified on management, and today’s strategic shuffle feels like a last roll of the dice. ‘With the share price now down 36% since his appointment in September 2013, chief executive Gavin Patterson will be under serious pressure to get this turnaround effort right,’ says AJ Bell’s Mould.
