Do you think BT is a good investment? Or is it Too much of a slow grower?
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BT is a British institute and the largest provider of fixed line, broadband & mobile services in the U.K.
Thanks to it’s acquisition of EE group back in 2016 which has over 32 million customers.
Then there is BT sport,
BT Sport holds the UK broadcast rights to a number of premium sports events, including the Premier League, Uefa Champions League.
This gives BT a real competitive advantage however it does come at price.
With BT paying approximately
$1.5 billion (£1.2 billion) to retain its exclusive ownership of the UK UEFA Champions League (UCL) rights for a further three seasons.
Overall, the business has over 18 million customers in 180 different countries and
Is NOW one of the lowest cost stocks in the FTSE 100.
So is this the Bargain of the century or could there be some major risks with investing into this company?
What about BT and OpenReach?
In 2017, the telecoms regulator OFCOM ordered that BT be a legally separate entity from it’s OPENREACH division which runs the RUN’s the UK’s Broadband infrastructure.
That is all the telephone exchanges, ducting and major cabling routes.
This was due to complaints from BT rivals, including Sky and Talk Talk, which stated they received bad and more expensive service for the usage of Openreach’s Broadband lines.
These days Openreach is a legally separate entity but BT still has a stake in it which makes it the Crown Jewel earner for BT and highly valued as a potential target for outside investors!
Recent talk of a potential sale of BT’s Openreach stake caused the stock to rally by around 5% .
A deal for the sale could value Openreach at up to £20bn – double the current Market share!!
Many analysts have predicted this extra cash would help to fund the roll out of Super fast fibre to the premises and the revolutionary 5G network.
However, the Openreach boss Clive Selley has roundly dismissed a report of a potential sale.
WHAT ARE THE RISK’s with Investing into BT?
Despite BT being the Market leader in a number of area’s from fixed line broadband to Mobile customers. There are many challenges facing the business.
COMPETITION:
Virgin Media and O2 plan a £31 billion merger to challenge Sky and BT.
A deal between Virgin Media and O2 would bring together the mobile operator’s 34m customers, the largest network in the UK, with the cable operator’s 5.3m broadband Subscribers.
This would be a serious challenge to BT, as then they would also have the economies of scale.
PENSION DEFICIT:
BT has being struggling with a £7,2 billion pension deficit for a number of years now.
But thanks to a series of cost cutting mentions it has now reduced by £6.1 billion to just £1.1 billion in March 2020.
As it’s liabilities dropped from £59.4bn to £53.3bn, according to its full year results.
Despite the decrease BT still has large obligations which may restrict the speed of future expansion plans.
DIVIDEND SUSPENSION:
To save some cash for future investment and help power it self through the recent health crisis, BT suspended it’s dividends until 2022 .
The good news is, when reinstated at the current share price this will result in a 6.8% yield! Which is very healthy indeed.
Only time will tell if managements “investment for growth strategy” will work and reward shareholders handsomely.