Bt Share Discussion Threads

[pacemaker1000] 19/12/2016 20:55

It's a pity that Brexit is mostly responsible for the share price being down in the first place! Saving grace is it saved the Openreach split

[christh] 19/12/2016 19:43

BT’s appeal has been boosted by Brexit
The potential for higher interest rates

While negotiations on the terms of the UK leaving the EU have not yet commenced, the impact of Brexit on sterling has been clear. It has weakened by around 17% versus the US dollar since 23 June, and in my view there is scope for further depreciation.

Uncertainty surrounding Brexit is likely to increase next year once Article 50 is invoked. A hawkish Federal Reserve also means that the dollar will appreciate while the pound does the opposite.

The effect of a weaker pound on inflation is just starting to be felt. Inflation hit 1.2% in November, but fast forward a year and it could be much higher.


According to the Bank of England, it will be just under 3% in 2017 and this could lead to an expectation that higher interest rates will be required further down the line in order to cool inflationary pressures.

This prospect is made more likely because initial forecasts for a large rise in unemployment and a slowdown in GDP growth in the UK may not come to fruition. Therefore, an ultra-low interest rate may not be needed, particularly with weak sterling providing a boost to the economy.
The effect on pension liabilities

BT has a pension liability of £6.4 billion. This originates from its days as a nationalised business and in my view it continues to be a drain on its performance and investment appeal. It means reduced reinvestment, as well as higher risks.


Therefore, I believe that the company has been hurt by its large pension liability in recent years, since low interest rates have caused gilt yields to compress. In turn, this has meant the net present value of pension liabilities has risen.


However, if there is an increased chance of interest rate rises over the medium term, then, other things being equal, gilt yields should also increase. The effect of this on defined benefit pension liabilities across the board should be positive and improve funding levels. It could mean that there is extra cash available to reinvest for future growth, pay down debt or to even offer a higher dividend.

I also believe that it will cause a reduction in the risk profiles of companies with large pension liabilities. This could cause investors to switch from highly indebted companies to ones with large pension liabilities. Therefore, the latter’s valuation could rise.

Wider appeal
BT’s investment case is improved by a strategy which in my view will deliver improving profitability in the long run. Its acquisition of EE has positioned the company for growth within the quad play space, with it now being the dominant player in the market. The integration of EE has been successful so far and planned synergies are being delivered as expected.

The revised corporate structure which has been put in place since the EE acquisition is a logical move and should provide improved efficiencies. This is alongside cost cutting measures which do not seem to be negatively impacting on service levels or customer satisfaction. This is evidenced by a sustained low churn rate in mobile in particular.


The business has been able to add significant numbers of new customers to its broadband offering in particular, with it having a 65% retail share of total broadband net additions at 76,000 in Q2. This provides the company with cross-selling opportunities further down the line.

Continued reinvestment in 4G and superfast services, alongside products such as free BT Sport for broadband customers, mean that BT continues to offer a degree of product differentiation versus rivals.
Valuation and income potential

Since the referendum, BT’s shares have underperformed the wider market by 27%. This may be partly due to uncertainty surrounding costs for the inappropriate management behaviour at BT Italia. A non-cash specific item charge of £145 million was recorded in Q2 as a result of the investigation.

The company’s shares now trade on a P/E of 12.1. I believe this is fair value given the 6% EPS growth forecast for 2017, as well as its long term growth potential from the cross-selling of services.

If interest rates rise over the medium term and the pension liability falls, there may be more cash available with which to pay higher dividends.

A yield of 4.2% should also appeal in a higher inflation environment. Dividends per share represent 50% of EPS, so should rise by at least as much as earnings. If interest rates rise over the medium term and the pension liability falls, there may be more cash available with which to pay higher dividends.

However, this would have to be balanced alongside a potential reduction in the £14.3 billion debt pile as well as a reinvestment in the product offering. Therefore, dividend growth may be generous, but not sky-high over the medium term.

Outlook

In my view, BT will benefit from Brexit.

The weakening of sterling is set to cause inflation to spike which could mean that there is pressure on the Bank of England to raise interest rates. This could cause gilt yields to do likewise and mean that BT’s pension liability is reduced in size. A freeing up of cash for dividends, paying down debt or reinvestment may result, which could improve the company’s prospects as well as market sentiment.

Additionally, I feel that BT’s strategy is sound and its dominant position within the quad play market could lead to substantial cross-selling opportunities. A fair valuation and above average income prospects enhance the company’s appeal. Therefore, I’m bullish on its potential over the medium term.

[montyhedge] 19/12/2016 16:52

Before you lot say ah they are not 375p, they TOUCHED 376p TODAY. No 1 strikes again.

[excell1] 19/12/2016 14:53

Wake me up please when they get to 475p.

[montyhedge] 19/12/2016 13:19

You know who the top trader is.

[dipso] 19/12/2016 12:53

monty said this on Friday

"These will 375p by Tuesday in my view, ridiculous cheap."

No.1 right again.

[wisteria2] 19/12/2016 11:54

Well some big buyer seems to have taken up the slack!! back above 4 Quid in in no time!!! am sure I said that months ago!! GLA HOLDERS

[montyhedge] 19/12/2016 09:53

To me it was like someone ringing a bell last week, when one of the top fund managers was asked on CNBC, what do you like for 2017 and he said BT, if other big boys thinking like that then take off. Down nearly 25% this year, crazy market sometimes.

[pierre oreilly] 19/12/2016 09:32

But Monty, I and lots of others have been saying the pension situation is largely a red herring due to the method of its deficit valuation, which varies massively simply with basically gilt yields (therefore correlated to inflation). When people told you that recently, you simply ignored it and declared the pension deficit would kill BT. I think before that, you said the deficit was no problem, before that a killer, before that no prob ... etc etc etc.

No doubt, next week the pension fund will again be the certainty to wipe out bt (until you buy in again when again it will be no probs).

What do you really think genuine investors here seeking genuine information think of your views, which rely on nothing at all except your current position?

My view is the pension fund has been addressed and the silly method of calculation will mean bt will rise as gilt yields rise (all other things being equal) - and that applies whether i hold or don't hold or don't care.

[montyhedge] 19/12/2016 09:29

Back to 415p in the New Year boys.

[montyhedge] 19/12/2016 08:17

Dividend goes ex 29th Dec 4.85p in the bag.

[montyhedge] 19/12/2016 06:53

Guy on CNBC reckons interest rates could go up 4 times in US next year. Well that helps looks after the BT pension deficit and no split of Openreach. BT fallen 25% this year on record revenue, record profits and record dividend, bears your time is up.Woodford get back in 4.3% yield for next year.

[christh] 18/12/2016 19:01

A dominant player

The quad play space (mobile, broadband, pay-TV and landline services from one provider) is becoming increasingly competitive. A whole host of companies in the media and telecoms space have transitioned into new services to generate cross-selling opportunities. However, BT(LSE: BT.A) is in a strong position to perform well even in this tough operating environment since it has been able to add a relatively large number of customers in a short space of time.

Looking ahead, this should generate high levels of cross-selling and with BT now being the dominant mobile player thanks to its acquisition of EE, it may be undeserving of its current valuation. The company's share price has fallen by 24% this year and it now has a P/E ratio of just 11.7. And with its earnings due to rise by 6% next year, it continues to perform in line with the wider market.

Furthermore, BT yields 4.3% from a dividend which is covered twice by profit. This makes it a strong income stock for the long term, which could increase its appeal at a time when inflation is likely to become a more pressing concern for investors.

link

[montyhedge] 16/12/2016 10:51

These will 375p by Tuesday in my view, ridiculous cheap.

[excell1] 16/12/2016 09:29

Treat yourself to an early Christmas Present for 2017 by buying a few grossly oversold BT shares.

[montyhedge] 16/12/2016 08:05

Seems strange, last set of figures, record revenue, record profits, record dividend, but lost 25% in shareprice this year.All because of worries over Ofcom and pension deficit.Higher US rates will sort out the pension and Ofcom no split.So my theory we should go higher.

[montyhedge] 16/12/2016 07:59

WaldronGood write up for BT, certainly a winner for 2017.

[montyhedge] 15/12/2016 15:20

BT lost 25% this year. I'm glad the top fund manager on CNBC when asked what he likes he said BT. If that's the way the big boys are thinking, then don't be short and caught. I think 415p January.

[montyhedge] 15/12/2016 11:40

415p New Year, big coming back in.

[dmf] 15/12/2016 11:24

These 2016 'dogs' are set to become 2017's 'darlings'

hxxp://money.aol.co.uk/2016/12/15/these-2016-dogs-are-set-to-become-2017s-darlings/

[alphorn] 15/12/2016 11:07

...less capital losses on existing bond portfolios as yields rise.

[montyhedge] 15/12/2016 10:50

Fund managers piling in it's seems to me.Higher US higher interest rates, higher bond yields = more income for the BT pension scheme.

[montyhedge] 15/12/2016 09:05

They said buybacks last set of figures, surely they buy before 29th Dec when BT go ex dividend. Fund managers seem to be coming back into BT. Come on Woodford, 4% yield and growing 10% pa. covered 2.14 times, surely a buy.

[montyhedge] 14/12/2016 19:55

Interest rate up in US, good news for BT higher bond yields reduces the pension deficit.