BT Group Finals

[idpickering]

Key strategic developments:

• Ofcom's WFTMR1, outcome of recent spectrum auction and Government's tax super-deduction allows us to increase and accelerate our FTTP build from 20m to 25m premises by December 2026; BT to explore potential joint venture for additional 5m build - see separate press release

• Agreed triennial pension deficit of £7.98bn and deficit recovery plan comprising: asset-backed funding over 13 years (£180m p.a.) secured against the EE business; and further payments over 10 years (£900m p.a. reducing to £600m p.a. from 1 July 2024) - see separate press release

• Secured 80MHz of 5G spectrum for a total of £475m in Ofcom's auction allowing us to build on our position as the UK's number one 5G network

• Significant UK cash tax benefit in 2021/22 and 2022/23, as a large proportion of our capital expenditure is expected to qualify for the proposed 130% tax super-deduction

Strong operational performance during the Covid-19 pandemic:

• Strong network performance; BT's broadband networks seamlessly managed a doubling of daytime traffic due to more people being at home during the day; 42% increase in EE mobile data usage over the last 12 months

• Group NPS2 increased by 7.8 points compared to the prior year baseline, a 19th successive quarter of growth

• Openreach achieved 2.0m in year FTTP build with record build levels in Q4; increased FTTP connections by 73% to 905k over the last 12 months

• 5G footprint doubled to 160 locations and 5G ready customer base now over 3.2m; EE named the Fastest Mobile Network by Uswitch in February 2021

• Tracking ahead on our modernisation plans; delivered gross annualised savings of £764m within the first year of our three-year modernisation programme with an associated cost of £438m

Financials delivered in line with guidance primarily impacted by Covid-19:

• Revenue £21,331m, down 7%, primarily due to the impact of Covid-19 on Consumer and our enterprise units, ongoing legacy product declines and divestments, partly offset by higher equipment revenue and Openreach bases in fibre and Ethernet; adjusted2 revenue down 6% in line with expectation

• Adjusted2 EBITDA £7,415m, down 6% as expected, primarily due to the fall in revenue, special frontline bonus, increased service costs and continued investment in copper-to-fibre migrations and our FTTP base, partly offset by sports rights rebates and cost savings including our modernisation programme, tight cost control, and Covid-19 mitigation actions

• Reported profit before tax £1,804m, down 23%, primarily due to reduced EBITDA

• Net cash inflow from operating activities £5,963m; normalised free cash flow2 £1,459m, down 27%, primarily due to reduced EBITDA, higher cash capital expenditure and adverse working capital, offset by a cash receipt from the monetisation of a non-strategic revenue stream generated from our building infrastructure and timing of tax payments

• Capital expenditure £4,216m, up 6%, primarily due to increased network and equipment investment

• As previously disclosed, no final dividend for 2020/21, but payments expected to resume at an annual rate of 7.7p per share in 2021/22

• Outlook for 2021/22: adjusted2 revenue to be broadly flat year on year; adjusted2 EBITDA between £7.5bn-£7.7bn; capital expenditure c.£4.9bn; normalised free cash flow between £1.1bn-£1.3bn.

https://www.investegate.co.uk/bt-group- ... 00064783Y/

[tjh290633]

This raises an interesting point. As BT have said that they are going to pay a dividend of 7.7p next year, I have taken them at their word and used that as their prospective yield. The effect of that is to move Glaxo, National Grid and Imperial Brands out of the disqualification zone and promote BT.A to 3rd place. IMB is in first place, BATS (disqualified by share of income) is second. IGG was the first eligible share.

Should I wait until the formal declaration? Without making this change, I would have topped up IGG on Monday. IMB are the highest yield share that I hold, and BT.A has a lower yield than the others. Income from IMB will come much sooner (June, September and December, compared with February 2022) than BT, but BT.A may rise in price in the relatively near future.

Will the new man make his mark rapidly?

TJH

[Dod101]

This raises an interesting point. As BT have said that they are going to pay a dividend of 7.7p next year, I have taken them at their word and used that as their prospective yield. The effect of that is to move Glaxo, National Grid and Imperial Brands out of the disqualification zone and promote BT.A to 3rd place. IMB is in first place, BATS (disqualified by share of income) is second. IGG was the first eligible share.

Should I wait until the formal declaration? Without making this change, I would have topped up IGG on Monday. IMB are the highest yield share that I hold, and BT.A has a lower yield than the others. Income from IMB will come much sooner (June, September and December, compared with February 2022) than BT, but BT.A may rise in price in the relatively near future.

Will the new man make his mark rapidly?

TJH

I do not hold BT and will not any time soon. If you hold it then I suppose it would be sensible to continue doing so but I would wait until the dividend is actually paid or at least the shares have gone ex before counting on it. A lot can happen in 9 months or so.

Dod

[monabri]

A top up of BT now would be in anticipation of a "promise" of a 4.8% yield next year. In the meantime, the money is dead in terms of earning income so wouldn't it be better to invest in something that is currently paying a dividend? A possible reason for a top up would be that one expects/hopes that the share price will increase and then it might lead to a top slicing of BT at some future date It's more a question of whether one thinks that the new guy will indeed turn the ship around? Maybe, the hope of a shareprice rise is the thought here?

p.s.
If a 5G network rolls out and I can get get unlimited data 5G at home from "a.broadband.provider" (probably not BT), I would ditch the BT landline as it is a source of frequent nuisance calls (I'm paying to be annoyed by these calls, FGS!). It is only because of things like Netflix that I actually currently have a landline and broadband supplied over said landline.

[csearle]

Should I wait until the formal declaration?

I think that in the grand scheme of things it would probably have only a marginal impact on your HYP if you did it now or at a future top-up when the dividend is, er, ratified.

Mind you I think monabri's point is a good one.

C.

[Gengulphus]

This raises an interesting point. As BT have said that they are going to pay a dividend of 7.7p next year, I have taken them at their word and used that as their prospective yield. The effect of that is to move Glaxo, National Grid and Imperial Brands out of the disqualification zone and promote BT.A to 3rd place. IMB is in first place, BATS (disqualified by share of income) is second. IGG was the first eligible share.

Should I wait until the formal declaration? ...

I'm pretty sure that there have been quite a few occasions in the past when companies have stated an intention to pay a certain amount of dividends in the upcoming year without at the same time formally declaring them, and my (possibly faulty) recollection is that you've said you use such statements of intention when assessing a company's yield. Assuming that's correct, do you have any particular reason why you're considering departing from your usual practice this time, and if so, what is it? (Or if it isn't correct, what is your usual practice?)

By the way, that's not meant to imply there cannot be a good reason for departing from your usual practice. Indeed, I can see one such reason I find very reasonable, namely BT's past dividend record as shown in https://dividenddata.co.uk/dividend-his ... ?epic=BT.A. A serious cut in 2001/2002, growing back to less than the previous level before another serious cut in 2009, growing back again to slightly below the previous level in 2017 and then stagnating until yet another serious cut in 2020/2021 and only intending to restore the dividend to 7.7p in 2020 (an amount grown at a CAGR of only about 1.3% since the level it was cut to in 2009) seems to me to fall a long way short of the sort of long-term growth record HYPers are looking for!

There are of course some fairly major reasons for those cuts, in the forms of the collapse of the tech bubble, the 2008-2020 financial crisis and COVID19. But BT is not by any means the only HYP company to have been affected by those events, and many have done better (not all - Aviva is another with a decidedly poor long-term dividend growth record: https://dividenddata.co.uk/dividend-history.py?epic=AV.).

Personally, I think I'm going to treat BT's forecast dividend as 7.7p (which it probably will actually be once the forecasters have caught up), which will probably put it high in my top-up rankings - but also put it on my "don't top this up" and "candidates for selling in the right CGT circumstances" lists...

Gengulphus

[tjh290633]

I'm pretty sure that there have been quite a few occasions in the past when companies have stated an intention to pay a certain amount of dividends in the upcoming year without at the same time formally declaring them, and my (possibly faulty) recollection is that you've said you use such statements of intention when assessing a company's yield. Assuming that's correct, do you have any particular reason why you're considering departing from your usual practice this time, and if so, what is it? (Or if it isn't correct, what is your usual practice?)

By the way, that's not meant to imply there cannot be a good reason for departing from your usual practice. Indeed, I can see one such reason I find very reasonable, namely BT's past dividend record as shown in https://dividenddata.co.uk/dividend-his ... ?epic=BT.A. A serious cut in 2001/2002, growing back to less than the previous level before another serious cut in 2009, growing back again to slightly below the previous level in 2017 and then stagnating until yet another serious cut in 2020/2021 and only intending to restore the dividend to 7.7p in 2020 (an amount grown at a CAGR of only about 1.3% since the level it was cut to in 2009) seems to me to fall a long way short of the sort of long-term growth record HYPers are looking for!

There are of course some fairly major reasons for those cuts, in the forms of the collapse of the tech bubble, the 2008-2020 financial crisis and COVID19. But BT is not by any means the only HYP company to have been affected by those events, and many have done better (not all - Aviva is another with a decidedly poor long-term dividend growth record: https://dividenddata.co.uk/dividend-history.py?epic=AV.).

Personally, I think I'm going to treat BT's forecast dividend as 7.7p (which it probably will actually be once the forecasters have caught up), which will probably put it high in my top-up rankings - but also put it on my "don't top this up" and "candidates for selling in the right CGT circumstances" lists...

Gengulphus

It is really the sudden promotion of IMB, because of the probable future dividends from BT.A, that prompted me to comment. I knew that any resurrection of dividends from my four non-payers (Marstons, Marks & Spencer, BT and Compass) would change the situation. As you say, companies which state their intention to pay dividends at a certain level usually do so, Aviva being a notable example, with their restoration at the promised level.

I am inclined to wait until I can see the whites of BT's eyes before contemplating adding to my holding in the future. On the other hand, the prospect of substantial birds in my hand from IMB in the near future encourages me to recognise their release from house arrest at this time.

Thanks to all who have commented above.

TJH

[moorfield]

Should I wait until the formal declaration? Without making this change, I would have topped up IGG on Monday. IMB are the highest yield share that I hold, and BT.A has a lower yield than the others. Income from IMB will come much sooner (June, September and December, compared with February 2022) than BT, but BT.A may rise in price in the relatively near future.

I do not hold BT, but yes would take the pessimistic view in this case and fix my "income ntm" (next twelve months) forecast and hence yield to zero (*) until the new interim and ex-dividend date is announced, which would rule it out as a top up candidate and change the relative rankings of other holdings. In other words, I'm not kidding myself that I have an income producing share in the portfolio at least until then - a mistake I've made previously, and do not care to repeat. I would then restore the income ntm forecast to 7.7p and, assuming little change in the share price, a yield of ~4.7% which may or may not promote it as a top up candidate.


(*) Edit: Having just looked at it's dividend history, I would have already done this during the pandemic cuts last year.

[Arborbridge]

I remember posing a question to Pyad many years ago concerning companies which cut and then resume dividends. The answer was to use the basic HYP qulification guidelines: i.e. look for five years of rising or stable dividends, otherwise the share does not qualify. I believe Luni also applied the same rule before re-investing in a "slasher".

Personally, I'd be too impatient to wait five years and usually make a judgement on how the company is progressing during its recovery. In any case, a rationalisation for shelving that rule at the moment, if one so desired, is that Covid has altered the landscape temporarily so that normal rules should be followed. I should declare (as some of you know) that I've been known to take a small "punt" by ignoring this rule myself for a slasher: notably Tesco and Lloyds, neither of which have rewarded me for that decision as yet (interestingly Tesco is asking for a topup, being in third place in HYPTUSS).

It would be interesting to have a comment from Stephen about this.

Arb.