When the stock market falls out of love with a company, it can be hard to rekindle affection. At 159p, down 10p, yesterday, BT shares are signalling that, after mixed annual results, investors are staring at a glass half-empty rather than half-full.
The shares have been on a tortured run since they surrendered their £11.73 peak in December 1999. The price is back to pre-pandemic levels but still far from the 496p of five years ago. For optimists that shows potential, but pessimists will wonder what lies around the corner.
Revenue for the year to March 31 was down 7 per cent, primarily due to Covid-19, legacy product declines and divestments, partly offset by higher equipment revenue and Openreach bases in fibre and Ethernet.
Profit before tax fell 23 per cent, normalised free cashflow was down 27 per cent but capital expenditure rose 6 per cent, a sign of hope. Much of the capex budget is expected to qualify for the proposed 130 per cent tax super-deduction to encourage UK economic recovery. There was no final dividend, as expected, but it should resume at an annual 7.7p per share this year. That compares with 4.6p a year ago and 15.4p before that.
Keith Bowman, equity analyst at Interactive Investor, said: “BT is trumpeting a tough but transitional year with these results. Regulatory clarity and the government’s new tax-related investment incentive are enabling the company to accelerate its total fibre-to-the-premises build from 20 million to 25 million homes by December 2026. A potential joint venture for an additional five million builds offers further momentum.”
The broadband networks coped with a doubling of daytime traffic due to more people being at home during the day. EE’s mobile data usage has risen 42 per cent over the past 12 months.
But there was no further word on the recently revealed talks with Amazon, Disney and others to sell all or part of its struggling television sports arm, BT Sport. Instead, footy fans grumbled that they face long late-night journeys home after its kick-offs were moved from 12.30pm to 7.45pm to appease club managers.
BT has bitten the bullet over its staff pension deficit, estimated to have stood at £8 billion last June. It plans to cut that with yearly contributions tapering from over £1 billion a year to £180 million over the next 13 years. And that is assuming all goes smoothly.
Ben Barringer, equity research analyst at Quilter Cheviot, said: “The results are largely in line with expectations, with revenues and profits falling on consumer demand and a well-intentioned bonus to staff for their work during the pandemic. However, while it has performed well in the short term, uncertainty remains.”
The worst of the uncertainty lies in relentless fierce competition from Sky, Virgin, Vodafone and others in a market where many of the barriers to entry are enticingly low. And, as soon as BT shows signs of besting its rivals, its size means that it is an easy political target for tighter regulation.
Although BT was privatised 36 years ago, there remains the feeling that its management culture has not yet fully adapted to not having a statutory monopoly, so each poke in the ribs by rivals seems to come as a nasty shock.
The company predicts that adjusted revenue will be broadly the same this year as last, with adjusted Ebitda between £7.5 billion and £7.7 billion and normalised free cashflow between £1.1 billion and £1.3 billion.
The long decline in the shares means that the promised 7.7p dividend works out at an attractive prospective 4.8 per cent yield, a figure that has scope to double if the payment can be restored to what it was as recently as two years ago.
Advice Hold
Why Plenty of problems to overcome but in the medium term the worst may be past
Elementis
History does not record whether James Mease scratched his head when he invented tomato ketchup in 1812 and said: “What we need is a decent rheology modifier.” Yet without that ingredient today you would have a tougher job extracting the sauce from the bottle.
Giving liquids adaptable levels of viscosity has many other commercial applications, from paint to lipstick, which means that these little-known chemicals turned over $5.5 billion globally last year. Elementis, which operates in Europe, the Americas and Asia, has rebuffed two takeover bids in the past six months.
Paul Waterman, chief executive, reported yesterday that the business had performed strongly and ahead of expectations in the first three months of this year. Revenue was approximately 6 per cent higher than in the same period last year, which was largely before Covid-19 hit. Customer restocking, helpful currency movements and rising underlying demand all contributed.
Economic recovery fed into industrial coatings but personal care products were hit by weak demand for cosmetics and, tut-tut, anti-perspirants, as we were spending more time at home and not meeting people.
Elementis adapts chrome and talcum powder for cars, where demand has begun to pick up. But its paper coatings sales were weaker, thanks to the shift to digital books, newspapers and emails.
The company, although London-based, accounts in US dollars. Waterman nodded towards 2021 adjusted operating profits close to $103 million, not far from last year’s. That is slightly disappointing, given it will include $10 million cost savings and $30 million of new business.
Nevertheless, the shares have the added sparkle of takeover prospects. Either of the two recent suitors may return or a third may try. However, the market is not holding its breath, because the share price has been unable to hold the 160p that the latest bidder, Innospec, was offering in March.
The absence yesterday of hints about restoring the dividend would not have helped, but optimistic noises about prospects for the rest of this year should lay the foundations for a decent return.
Advice Buy
Why A good bet on recovery with takeover prospects
