I last wrote about telecoms company BT (LSE: BT.A) with a bearish article on 17 February when the share price was 153p and falling.
Today, the stock stands close to 119p, as I write. Is there no end to this venerable old name’s plunge? Just over four years ago, the shares were changing hands north of 480p. Those unlucky enough to have been holding since then will have seen more than 75% wiped off their invested capital.
The BT share price reflects poor trading figures
Revenue and earnings have been falling over the period and that trend looks set to continue next year. Perhaps worst of all, the shareholder dividend has started to ease back, with City analysts pencilling in further falls ahead. BT is burdened with tons of debt and is engaged in an apparent retreat from some of its operations abroad with the aim of turning its business around in the UK.
However, BT needs to reinvest huge sums of money into maintaining, renewing and upgrading its infrastructure and services almost all the time. Indeed, operations are capital-intensive. And without the ongoing investment, the business could slip further. I reckon that’s probably the main reason for the huge borrowings BT carries.
But without reinvestment, there won’t be growth and, without growth, there’ll be little chance of the company reducing its pile of debt from incoming cash flow. If earnings don’t pick up soon, it wouldn’t surprise me to see BT diluting existing shareholders by raising more capital from the stock market. And that’s a risk I’m not prepared to take by holding shares in BT.
An announcement on 24 March is a good example of BT’s retreat from worldwide operations. BT and the FTSE 250’s IT infrastructure and services company Computacenter (LSE: CCC) said they had entered negotiations about Computacenter acquiring BT’s domestic operations in France.
Strong performance
The two firms couldn’t be more different. Although some of their operations are similar. For a start, Computacenter’s market capitalisation near £1.77bn is much smaller than BT’s more than £22bn. But the most striking difference is Computacenter’s strong performance over the past four years, which contrasts with BT’s poor performance.
Even after the recent plunge in Computacenter’s shares because of the coronavirus crisis, the stock is around 70% higher over the period. And the movement reflects a strong record of generally rising revenue, earnings, cash flow and shareholder dividends. The firm said in March it expects the coronavirus crisis to affect operations to some extent in the short-term, but the long-term outlook remains bullish.
I see Computacenter as a proven growth proposition and BT as a company that needs to turn itself around. And I’d be much more inclined to use the recent weakness in the stock market to pick up shares in Computacenter than I would in BT.