Interactive Investor

Raw deal for retail investors as BT shares slide

28th July 2017 11:48

Graeme Evans from interactive investor

For BT's army of small investors, the payment of £225 million to two of the telecoms group's big shareholders is unlikely to sit comfortably after another year of disappointment.

The outlay stems from a warranty in place since Deutsche Telekom and Orange became BT shareholders through the sale of mobile company EE to BT in 2015.

Having seen their exposure hit by the UK company's accounting scandal in Italy, the £225 million payment represents a "full and final settlement" from BT in respect of the warranty.

There's been no such respite for BT's rank-and-file investors, who have seen the blue-chip stock head south since the Italian profits warning, with shares now a long way from the 500p touched in November 2015.

BT argued that the payment represents a better outcome for all shareholders than if it had become embroiled in a long drawn-out legal process.

As a result of the settlement, BT's profits for the first quarter of the financial year were down by 42% to £418 million. Excluding the one-off items, underlying earnings were 2% lower at £1.78 billion, with BT facing up to increases in pension costs, business rates and sport programme rights.

Shares fell by 21% in January following the BT Italia revelations, even though the division only represents about 1% of group profits.

A further blow to confidence came in March when regulator Ofcom issued BT with a record fine of £42 million for reducing compensation payments to other telecoms providers for late installation.

With the company's pensions deficit among other areas of investor concern, shares are below where they stood when Gavin Patterson stepped up from BT Retail to take over as group chief executive in September 2013.

The stock was down by nearly 4% Friday, even though UBS said the Q1 figures were modestly ahead of expectations, with full-year guidance unchanged for £7.5-7.6 billion in underlying earnings.

UBS analyst Polo Tang said: "The modest beat for Q1 is encouraging but we note the shares have rallied into these numbers."

He pointed out there continued to be a lack of visibility on both pension costs and capital expenditure.

Among other developments today, BT's Consumer and EE divisions will be brought together in order to boost convergence spanning fixed and mobile networks, consumer products and services as well as content.

Revenues rose 1% to £5.8 billion, helped by a 4% improvement at EE and a gain of 7% to £1.25 billion for BT's Consumer division. This included a 9% increase in broadband and TV revenues and 6% rise in calls and lines revenue, partly due to the impact of price changes.

The average revenue per user increased 8% to £40.80 a month, driven by broadband and BT Mobile.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.