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BT - Value Disaster Or Wealth Creator?

BT released its results on Thursday last week (the 10th of May 2018) - which set me wondering has BT been a value destruction machine or a leader in the creation of wealth? So I went seeking answers.

Has BT Been A Value Disaster?

 
With headlines from the BBC, “BT to axe 13,000 jobs and move out of central London HQ” and the FT Saying “the parlous state of the company’s balance sheet has forced it to cut its ties with … history as it slashes its workforce and radically overhauls.” – it begins to feel as if BT must have been a money pit.

 
How Did BT Get Here?
 
In 1981, the British Telecommunications Act split off BT from the Post Office, and the telecoms sector was opened up to competition. Then in July 1982, the government announced it intended to sell over half its stake in the company. In 1984 it made good it’s pledge and the company that is now BT sailed into independency. The government still underwrites the pension scheme and BT has a universal service obligation to provide phones for everyone, and Ofcom rules over all – so the apron strings have not been fully cut.

 
Over the years there have been turbulent times – not least when a proposed merger with MCI, an American giant telco went wrong but left BT nursing a 2 billion windfall. A nice problem to have. The rise of the mobile phone saw BT start the company that became 02 only to float it off before eventually buying EE. The internet wasn’t heard of in 1984 but now strives for ubiquity. BT even launched BT TV.

 
BT has hit many problems the latest being the £42m Ofcom fine for abuse of Deemed Consent (where OpenReach forgave itself for doing work late using a loophole), and the £540m accounting scandal at BT Italia.

 
So What Has All This Done To Share Values?

 
In March 2013, John Douthwaite, chief executive of SimplyStockbroking, did some number-crunching which was reported by the Daily Telegraph paper.

 
Over 21 years, starting in 1984, BT had three share offers, the UK’s largest rights issue, plus the demerger and takeover of O2. Mr Douthwaite said: “If you applied for the minimum 100 shares in each offer, held them to get the bonus shares and instalment discounts and took up the rights you would now hold 423 BT Group shares valued at £1,175, but your cost would have been £1,116. However, in 2005 you would have received £846 from the Telefonica takeover of O2 shares which you received when they split into BT Group and mmO2 in 2001.

 
So, at that point you would have 423 shares with a total cost of £1,116 but with a value including the cash of £846 – that is £1962. In December 2015 BT split their shares on a 2 for basis – so you would now have had 846 shares.
 
The value today (10th of May 2018) of BT shares is around £2.15 so you would now have shares valued at £1818.90 plus your £846 in cash – a total of £2,664.90 – which in 1984 money is worth about £827. You would also have received a stream of dividends over the years.

 
BT Great Value?

 
The reality is that investing your money in BT would actually (and surprisingly) have been quite good. It’s easy to look back to the heady days of the millennium when the share price hovered at around £10, or 2016 when it was up around £5 and think it’s all been bad but you would be wrong. So, is now the time to lock in to get great value? I have no idea – but having a monopoly can only be good for shareholder value!

David Hill May 2018

Disclaimer
Whilst I have checked the facts presented here as best I can they may not be fully accurate. You should not rely on this blog to make investment decisions.

 

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