This morning, UK telecoms giant BT (LSE: BT.A) released its full-year results. The response from investors was negative, with the BT share price falling back on opening. Even so, there was good news for shareholders, because BT is reinstating its cash dividend.
BT had a tough 2020/21
Clearly, BT had a challenging 2020/21. In the year ending 31 March, revenue fell 7% to £21.3bn, largely due to the impact of Covid-19. But BT’s bottom line contracted even faster, hit by a special bonus for nearly 60,000 staff, higher servicing costs, and increased investment in fibre. Reported profit before tax crashed by almost a quarter (23%) to £1.8bn. Free cash flow also suffered, slumping 27% to £1.46bn. Given these weak figures, it’s understandable that the BT share price was down this morning.
Dividend comeback
As for capital expenditure, this rose by 6% to £4.2bn, as BT invests in the migration from copper to full-fibre connections. Looking ahead to 2021/22, BT expects its revenues to be broadly flat year-on-year. It forecasts higher capital expenditure of £4.9bn (up £700m on 2020/21) and lower free cash flow of between £1.1bn and £1.3bn. However, the good news for BT shareholders is that the yearly dividend will resume at 7.7p per share. Based on the current BT share price, this works out at over 4.8% a year. That’s at least a third higher than the wider FTSE 100 index’s dividend yield.
The BT share price dives
Overall, I don’t see BT’s latest results as being too bad. Without the group’s ongoing cost-cutting programme, they could have been a whole lot worse. But the share price had slid to 160p by 9.40am, down 9.05p (5.4%). Then again, the UK market as a whole is on a slide this week, with the FTSE 100 down over 2% this morning. Thus, BT shares have been dragged harder in a weak market.
Right now, BT is in something of a transitional phase in challenging times. But things are looking up for the former British Telecom. The latest Wholesale Fixed Telecoms Market Review has been completed, as has the recent 5G spectrum auction. Also, the government’s 130% tax super-deduction frees up more funds for BT to build the next generation of digital infrastructure. By end-2o26, it aims to have delivered full-fibre broadband connections to 25m UK homes (up 5m from the previous target of 20m). But the age-old problem of BT’s pension deficit (a whisker short of £8bn) still remains.
Would I buy with the BT share price at 160p?
Like all stocks, BT shares are a bet on a successful future for the firm. I like the news that the group is in talks to sell BT Sport, so as to focus on its core telecoms operations. Likewise, I welcome today’s news that it’s seeking external investors in a joint venture backing its highly profitable Openreach fibre division. At the current BT share price, the company is valued at around £16.5bn. If I had the vast personal wealth of Bill Gates, Warren Buffett or Elon Musk, would I buy the whole business? I think I would, which leads me to conclude that I would also buy BT shares at their current levels. But, with the shares hugely down from the £5 they hit in November 2015, I’m not expecting a smooth ride!