BT shares dive again as boss loses bonus

BT shareholders have just suffered their worst period since the financial crisis in 2008, an accounting scandal in Italy and problems elsewhere wiping 37% off the share price in the past 14 months. It's cost the CEO and FD their bonuses, and while BT has just confirmed that annual results were in line with downgraded estimates, a lack of guidance beyond the current financial year is making investors nervous.

Numbers for the year to March 2017 were roughly in line with company estimates downgraded in January following the savage profits warning.

Underlying revenue surged by 28% for the 12 months to £24.1 billion, with mobile phone operator EE chipping in £5.1 billion. However, compare like-for-like and sales fell 0.2%. Adjusted cash profit (EBITDA) came in at just over £7.6 billion, deterioration in UK public sector work blamed for a 2.9% slip. Prior to January, BT had pencilled in £7.9 billion.

However, on a reported basis, a substantial increase in depreciation and amortisation sank pre-tax profit by 19% to £2.35 billion following a 40% slump in the fourth quarter. BT will now restructure its international Global Services division after a 28% slump in orders during the final three months of the year.

For the current financial year to March 2018, BT now expects no change in adjusted revenue, adjusted cash profit of £7.5-£7.6 billion, a “progressive” dividend and £100 million of share buybacks.

And, in a year that saw BT take a £245 million charge for an accounting scandal at its Italian unit, and fined a record £42 million by regulator Ofcom for failings at its Openreach business division, top brass have been punished.

Neither chief executive Gavin Patterson nor Tony Chanmugam, who stands down as finance director in July to focus on integrating EE into BT, will receive a bonus for the 2016/17 financial year. Deferred bonuses for 2014-16 have been cut too, and Patterson will only be eligible for 350% of salary as part of BT's incentive share plan for 2017/18 rather than 400%.

Apparently, we're told they wouldn't have accepted a bonus had one have been approved, and neither should they have. They're lucky to be getting anything given the pasting meted out to shareholders in recent months. Another 4,000 staff will lose their jobs, too, as BT struggles to keep a grip on costs.

Even now, Patterson earned nearly £5.3 million in 2015/16 and over £1.3 million last year, while Chanmugam took home over £3 million for the two years.

BT shares tumbled more than 3% Thursday, approaching the January lows and prices not seen since 2013.

At 301p, a forward price/earnings (PE) ratio of around 10.2 based on Deutsche Bank forecasts, is hardly demanding, and a 10% increase in the final dividend gives a total of 15.4p for the year and a yield of 5%. However, growth in the payout will be less this year.

While there is some optimism around the arrival of Rio Tinto's Jan du Plessis as BT's new chairman – he joins the board next month and takes over in November – investors wanted more colour on progress anticipated next year.

Seems that with the finance chief off and a number of regulatory reviews underway - wholesale line access, duct and pole access and the universal service obligation for broadband – it was deemed unnecessarily risky by the board.

In the short-term, then, BT shares remain too much of a gamble for some without those forecasts, and amid an increase in both costs and competition. Further out, the valuation multiple and generous dividend will likely continue to attract long-term investors.

Deutsche Bank's Robert Grindle still thinks the shares are a 'sell' down to 275p.

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