ii view: Politicians and regulator give BT a headache

BT balances the expense of its dividend with the cost and speed of its UK fibre broadband roll-out.

Half-year results to 30 September 2019

• Revenue down 1% to £11.5 billion
• Adjusted profit (EBITDA) down 3% to £3.9 billion
• Interim dividend unchanged at 4.62p per share
• BT expects to hold the full-year dividend unchanged at 15.4p per share
• Full-year outlook maintained

Chief executive Philip Jansen said:

"We've invested to strengthen our competitive position. We've accelerated our 5G and Fibre to the Premises (FTTP) roll-outs, introduced an enhanced range of product and service initiatives for both consumer and business segments, and announced price and technology commitments to deliver fair, predictable and competitive pricing for customers.

Openreach is significantly accelerating its pace of FTTP build and is now passing a home or business every 26 seconds. Openreach announced a further 29 locations in its build plan to reach 4 million premises by March 2021, and we continue to make positive progress with Government and Ofcom on the enablers to stimulate further investment in full fibre."

ii round-up:

BT Group (LSE:BT.A) provides fixed-line phone services, internet broadband, mobile and TV products as well as networked IT services.

It serves the needs of customers in the UK and in 180 countries worldwide.

For a round-up of these half-year results, please click here.

ii view:

BT is the largest provider of consumer fixed-line voice and broadband services in the UK. Its defensive and cash generation qualities make it appealing to income seekers. Even in a recession, consumers are unlikely to give up their broadband and mobile phone services. Recurring line rental payments underwrite its dividend paying ability. 

For investors, an historic and forward dividend yield of more than 7% (not guaranteed), is highly attractive in the current interest rate environment. The maintaining of its interim payment and management expectation that it will hold the full-year payment are good news for income investors. 

But current government pressure to roll-out its fast fibre network to the whole of the UK by 2025 generates £25 billion to £30 billion of expenditure pressure, the cost of which might have to be funded by a combination of debt issuance, selling assets, redirecting other expenditure and a dividend cut. Political and regulatory uncertainty and a December UK general election significantly raise the difficulty for BT in judging potential returns on such an investment if undertaken. 

Positives

• Government recently pledged £5 billion to roll-out fast broadband across the hardest to reach 20% of the UK  
• Commenced the roll-out of its fast 5G UK services
• Currently attractive to income seeking investors

Negatives

• Adjusted profit (EBITDA) fell 2% over the last financial year
• Regulator Ofcom is due to open a consultation on broadband in December
• Dividend earnings cover of 1.5 times is below the three-year average of 1.8 times

The average rating of stock market analysts:

Buy