BT Blues Turns Red

    The 1st December 2016 overview, entitled “BT Blues,” highlighted the dire performance of the UK’s 20th largest quoted company by market capitalisation, British Telecom, aka BT Group PLC.

Aside of questioning its ability and commitment to roll–out ultra fast broadband to UK PLC, despite it being handed even more tax-payer money, the article reminded that BT was a company weighed down by debt of £14BN on a market cap of £35BN and a stated NAV of just £10BN, not forgetting the worst pension deficit within corporate UK. It concluded that BT would leave its customers’, competitors’ and share-holders alike feeling decidedly blue.

Share-holders will be forgiven this week if they see red as opposed to just feeling blue, when the company announced that an internal investigation of accounting practices in its Italian business could mean a hit of £530m, not the expected write-down of £145m it suggested only last October. Furthermore, BT expects its free cash flow to fall by £500m this year due to the costs involved in unwinding these “inappropriate transactions,” going on to issue a full-scale profit warning due to lower levels of spending by the UK public sector and international corporate customers.

Its share price promptly crashed by 20%, a huge 1-day move for a blue-chip stock (please excuse the pun.)

So is the stock a buy, hold or a sell?

Broker consensus has been suggesting that it’s a “strong hold” supported by a P/E of about 11, with a prospective yield of around 4.9%. However, aside of the negative facts stated above, BT’s pension deficit has ballooned to £9.5bn as of September 2016 and faces a triennial pension valuation this June. As such, cash-flow reductions and possible additional deficit reduction payments following the pension valuation may threaten the dividend plans.

Either way, the guidance is in the charts hence an update from last December is as follows:


Whilst the very short-term may see a modest bounce, our colour-coded indicator remains as the pink panel, a Sell signal triggered yet again before the dire news of this week.

In conclusion there is no reason to see blue or red, you only need to be concerned with pink, neutral and green.










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