Investors in BT Group (LSE: BT-A) have really been put through the mill over the past couple of years.
The firm has been forced by Ofcom to separate its Openreach infrastructure division into its own legal entity, a process which is still causing the FTSE 100 business considerable headaches, the regulator recently claiming that BT remains “significantly involved” in the Openreach’s strategic planning. It’s also been clobbered by calls for it to increase spending to accelerate the laying of fibre across the country.
Elsewhere, BT’s top line has been suffering in the face of tough economic conditions, and latest figures revealed that it is yet to get on top of this problem. Underlying revenues fell 2% in the three months to June, to £5.72bn, “as regulated price reductions in Openreach and declines in our enterprise businesses offset growth in our consumer business,” the telecoms play noted.
Its consumer division may have remained in growth during Q1, but the rate of sales growth slowed to 2% in the quarter. And BT may find it increasingly hard to cling on to subscribers as its BT Sport channels, once critical in luring customers from its rivals like Sky, continue to lose their broad suite of popular programmes.
Last month alone, BT lost the rights to show live Serie A football in Italy, the increasingly-popular Ultimate Fighting Championship series, and NBA basketball in the US. This isn’t likely to be the end of the matter though amid claims that the business has long been spending too much to acquire the rights to top-level sporting events like those mentioned.
Funny numbers
Perhaps the most frustrating issue for BT shareholders is that accounting practices at the firm still seem to be coming up short.
Two Januarys ago the business was forced to write down the value of its Italian division by an eye-watering £530m, a massively different figure from the estimate of £145m when signs of what the business described as “inappropriate management behaviour” first surfaced in October 2016.
The latest accounting scandal to hit BT concerns its pension deficit, its independent actuary Willis Towers Watson having underestimated the deficit by a colossal £500m. The error cannot be laid solely at BT’s door of course, and readers of last week’s announcement would have been more interested by news that the company’s pension deficit had shrunk by £1.8bn year-on-year to £4.6bn.
Still, the news doesn’t exactly give the impression that BT has both hands on the wheel.
Earnings estimates still sliding
Chief executive Gavin Patterson may be on the way out, but City analysts certainly don’t expect an immediate return to profits growth, not even on the back of his valedictory restructuring plan.
A 5% profits duck is forecast for the year to March 2019, and an extra 2% drop is estimated for the following year. Expectations of extended earnings weakness and BT’s vast debt pile are feeding predictions of dividend cuts too.
The frozen 15.4p per share reward of last year is expected to fall to 15.2p this year and to 14.8p next year, but I reckon even larger reductions could be on the cards, making large yields of 6.6% and 6.4%, respectively, irrelevant.
I’d also ignore BT’s low forward P/E ratio of 8.7 times. There could be much, much more pain to come for the Footsie giant, and for this reason I’m steering well clear.