BT Group (LSE: BT.A) shares took a blow Thursday, losing 8% in response to full-year results. And there’s a further hit after news from the competition too. The BT share price has now lost a thumping 45% of its value so far in 2020. Over the same time, the FTSE 100 is down just 22%, so we really can’t blame it on Covid-19.
Does it make the BT share price too cheap now? Before that, how did BT’s year go? Everything is apparently in line with expectations.
The results were dominated by the dividend, as BT has decided to suspended it. There will be no final dividend for the current year, and none at all for 2020–21. At the moment, the company intends to restart payments at 7.7p per share in the 2021–22 year. That’s just half of the 15.4p paid for each of the past three years.
At the current BT share price, the mooted 7.7p would still yield 7.3%. That’s greater than the March 2019 yield, but only because the share price has fallen so far since then.
Demands on cash
The dividend cut will come as a blow to some. But big investors have clearly been losing their confidence in it for some time, and it shows in the BT share price. I’ve never understood why a company insists on paying big dividends when it has far more important demands on its cash. BT’s cash management has, in my view, been severely inadequate for a long time now.
There’s a massive debt pile (including that ever-present pension fund deficit). And the costs of expanding its 5G network are astronomical. That’s just keeping up with the competition, never mind getting out in front.
Speaking of the competition, what’s the other news I touched on? Virgin Media and O2 are set to merge, to create a major telecoms and entertainment company. The two owners, Liberty Global and Telefonica respectively, say they have agreed terms. The plan might end up being looked at by the Competition and Markets Authority, so it’s not definite yet. But if it succeeds, it could pile more pressure on the BT share price.
BT share price cheap?
I don’t want to suggest that BT’s focus on preserving cash is too late, as it’s rarely too late to right a company’s wrongs. But I do wish it had happened a lot sooner.
I am disturbed, though, by the level of dividend resumption for 2021–22 having already been decided. That might have softened the impact on the BT share price today, but I don’t know at what cost. The new payments would be half the level of old, which is prudent. But I really don’t see BT’s debt situation improving much in the coming 12 months.
I see this dividend action as more like a sticking plaster, when what’s needed is intravenous antibiotics and extensive physiotherapy. I’d much rather have read “We’ll consider restarting dividends once we’ve finally got this company’s finances sorted out, and not before“.
I think the company has fluffed the chance to make real change, and even the new low BT share price does not make me want to buy.