Last Friday I read a headline, “BT share price crashes on Labour nationalisation threat” (or words very close to that), so I turned to the BT (LSE: BT-A) share price pages to see the extent of the carnage. And you know what? The price had only dropped a couple of percent. And by the end of the day, BT shares had closed just 1.1% down.
Under-reaction?
When the leader of the Labour party has vowed to nationalise your broadband business to provide free fibre access to everyone, you might expect the markets to react a little more negatively than that – unless, of course, they don’t expect it to actually happen.
I’m slightly active in local politics in a Labour stronghold, and I’m surprised by the amount of animosity I’m detecting towards Jeremy Corbyn from lifelong Labour voters. This coupled with the way the polls are going, makes me think his chances of building a 60’s socialist utopia in this country are slim at best.
What would I do as an investor? I did wonder whether it’s worth trying to short puppy farms in case Boris decides to get in on the freebies act too, but I didn’t find any listed ones.
But as for BT, the idea of Labour handing out government bonds to shareholders in compensation for taking their shares, with the amount determined by ministers at nationalisation time, is anathema to those of us who see free market principles as the least worst approach to price setting that we’ve come up with.
No need for fear
I think my colleague Paul Summers has nicely summed up the reasons not to be afraid. In short, even if Labour were to win the forthcoming election, the cost of its lofty ambition would likely be way higher than the £20b figure that the party seems to have plucked out of the air. As Paul pointed out, BT chief executive Philip Jansen has put the likely cost at around £100b.
The other key point is that the timescale is likely to prove prohibitive. I reckon the 10 years they’re talking about is a big underestimate, and I rate the chances of Jeremy Corbyn being PM for long enough to even get close to achieving it are close to zero.
Do you remember when David Miliband was heading the Labour party and had far less ambitious nationalisation ideas? What, you don’t even remember who he is? Radical election promises come and go, and business just carries on.
No change
I’d evaluate BT shares today in exactly the same way I would have done a week ago, on the merits of the company itself while ignoring distracting noises from politicians.
The BT price has been on a steady slide for years, losing 65% since a November 2015 peak. On key fundamentals, that makes the shares look cheap – a forward price-to-earnings of only eight, with dividends set to yield 8%.
But BT is an example of a company whose dividend policy infuriates me – it’s suffered a number of years of declining earnings and is shouldering huge amounts of debt, yet is handing out dividend cash like there’s no tomorrow.
BT needs to get its cash priorities sorted before I’ll consider buying the shares.