On Thursday, BT Group (LSE: BT.A) announced the appointment of Philip Jansen as its new chief executive, with the turbulent reign of Gavin Patterson set to end on 1 February 2019.
Mr Jansen is currently CEO of Worldpay, having helmed the payments technology company through its IPO in 2015, and so comes with an impressive track record. His job won’t be easy, as there’s much to be done at BT.
The telecoms giant has endured a period that’s seen an accounting scandal in Italy, a retreat from paying big money for top-rated football rights, and a share price slump as the reality of the company’s pension fund deficit and towering debt has come once again to the fore.
Break-up?
There have been calls for the break-up of BT by splitting off its Openreach business, though I don’t think that’s likely to happen. But shareholders need something to be done.
Over the past five years, BT shares are down 36%. But more recently they’ve started to pick up again, gaining 17% since the first week of June this year.
The big question is whether BT’s shares are good value right now, and at first glance, forward P/E multiples of under 10 suggest they might be — especially looking at forecast dividend yields of more than 6%
Granted, that yield is a function of the share price fall, but I’ll be surprised if dividends are not cut back significantly. A policy of paying high dividends by a company with massive debts and a cost-cutting crisis on its hands seems nothing short of madness to me.
BT could prove to be good value, but I want to hear Mr Jansen’s plans first.
Bigger fall
The Vodafone (LSE: VOD) share price has put in a very similar overall performance in the past five years to BT, though Vodafone has just pipped its rival with a fall of 40%. And its decline has been longer and slower, all the way from the days when I found the valuation of the shares puzzlingly high.
But even now, we’re still looking at a relatively high P/E multiple of 17 based on forecasts for the current year, with a mind-bending prediction of 9% dividend yields that would be nowhere near covered by earnings.
My other problem is that Vodafone appears to be more of a collection of worldwide telecoms operations rather than a joined-up company with a clear focus. At least, that’s the way it looks to me, as I struggle to appreciate the big picture.
The company is continuing to secure new deals, including the recent acquisition of several ranges of 5G spectrum in Italy for the total sum of €2.4bn. And last month we heard of a partnership with Telecom Argentina.
Debt mountain
But this expansion strategy is not helping Vodafone’s net debt figure, which stood at €31.5bn at March’s year-end. That’s more than twice last year’s adjusted EBITDA, and I find it hard to square that with the company’s aggressive dividend policy.
And I can’t get my head around a company that’s handing out dividend cash like it’s water while shouldering such massive debt, and trying to grow by acquisition and expansion, so I’m steering well clear.
