BT purchased EE, the wireless operator, in 2016. The acquisition gave the company a monopoly on network access to the UK market. It is the only British telecommunications operator able to offer wireless and fixed services without renting its network access. At first glance, what’s wrong?
BT share price underperformed
Looking at BT’s share price over the past five years, you’ll see a steady drop in value from its peak in 2016. The company’s stock is currently worth around 116p. It’s back where he was in 2009.
BT has significantly underperformed the FTSE 100 over the past five years. In my opinion, all of the gains from his EE purchase have been wasted.
BT also did not take advantage of its monopoly position. The company failed to overcome the challenges of new competitors. And it also seems to be struggling with regulatory and operational burdens.
Some analysts believe the company is slowly moving in the right direction. If so, I think progress is far too slow and is reflected in the falling share price.
In addition to BT’s woes, the UK Huawei dilemma. Much of BT’s current infrastructure depends on Huawei equipment. The UK government’s cap on Huawei’s use of the new 5G network is expected to cost the company £ 500 million over the next five years. This adds to the downward pressure on BT’s share price.
Downhill financial performance (H2)
Some analysts describe BT as a “higher FTSE dividend share”. This is mainly due to its attractive dividend yield and its monopoly position. However, the return is attractive because the share price is falling. Unlike many FTSE 100 companies, this is not only due to the recent crash.
A closer look at BT’s financial statements shows that its peak performance correlates with its purchase of EE. And it’s been going downhill ever since.
An asset value depreciation occurred in 2017. This was due to an accounting scandal in the Italian division of the company. At the same time, sales, operating profits and earnings per share have fallen and continue to do so.
BT has constant “exceptional” expenses that make me wonder how exceptional they really are. Since exceptional items are not included in the calculation of operating profit, declining profits may be higher than they should be.
And while I’m talking about accounting, changes in standards brought BT’s off-balance sheet financing to the balance sheet in 2017. The results were inflated EBITDA but also higher gearing.
As for this return of 13%, profits fall and debt increases. It’s easy to see why the dividend growth rate has been dropping year by year since 2016. Unless BT can make faster changes to its model, it will likely continue.
Incredibly, the average recommendation from a BT stock broker is a buy. With that in mind, if I had the stocks in the portfolio, I would continue to hold them. But I won’t buy them anytime soon.
It’s ugly there …
The threat posed by the coronavirus epidemic has frightened world markets, causing share prices to falter.
And with the Covid-19 virus starting to spread beyond China and Italy, it seems very likely that the bull market we have taken advantage of over the past decade could finally end.
In such a context of market anxiety, it is not surprising that many investors start to panic. (After all, nobody likes to see the value of their wallets drop significantly in such a short time.)
Fortunately, The Motley Fool is here to help, and you don’t have to deal with it alone …
Download a FREE copy of our Bear Market Survival Guide today and find out the five steps you can take right now to try to strengthen your portfolio … including how you can even aim to take advantage of today’s market uncertainty.
Click here to claim your free copy of this Motley Fool report now.
Rachael FitzGerald-Finch has no position on any of the actions mentioned. The Motley Fool UK does not hold any positions in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of ideas makes us better investors.