The BT (LSE: BT-A) share price has moved a little lower in morning trading today, after new chief executive Philip Jansen announced the FTSE 100 group’s latest annual results.
Revenue, profit and cash flow for the year ended 31 March were all down on the prior year, but in line with market expectations. Nevertheless, Jansen said the board has decided to maintain the dividend, and expects to do so again for the year to March 2020. This despite the chief executive also unveiling a raft of increased investment plans.
Here, I’ll look at what the latest news means for investors, and why I think the shares, which have lost around half their value over the past three years, are a terrific buy at the current level.
Invest, invest, invest
The group reported a 1% decline in adjusted revenue to £23.5bn, a 2% drop in adjusted EBITDA to £7.4bn, and an 18% fall in normalised free cash flow to £2.4bn. Its guidance for fiscal 2020 is a 2% decline in revenue, lower EBITDA of £7.2bn-£7.3bn, and lower free cash flow of £1.9bn-£2.1bn.
On the face of it, the outlook is uninspiring. However, I’m convinced Jansen can deliver long-term value for shareholders. Writing in March, I noted his highly successful overhaul of previous company Worldpay, where he invested boldly in a number of key areas for growth. And his mantra today for BT was “invest, invest, invest.”
He said: “We need to invest to improve our customer propositions and competitiveness. We need to invest to stay ahead in our fixed, mobile and core networks, and we need to invest to overhaul our business to ensure that we are using the latest systems and technology to improve our efficiency and become more agile.”
He announced that the company was ramping up the number of ultrafast fibre lines it plans to install to 4m premises by March 2021, from a previous target of 3m. And “an ambition to pass 15m premises by the mid-2020s, up from 10m, if the conditions are right, especially the regulatory and policy enablers.” He also said the group’s mobile phone business EE will launch 5G imminently and go live in 16 cities this year.
Dividends
Some analysts have previously been sceptical about whether BT could increase investment and maintain its dividend. And we’ve heard reports Jansen wanted to reduce payments to shareholders and prioritise more investment for growth, but was overruled by chairman Jan du Plessis and the board.
Be that as it may, I think BT has a good shot at achieving its aim “to deliver the best converged network and be the leader in fixed ultrafast and mobile 5G networks.” Even if, to achieve it, the dividend has to be rebased at some point (I’ve previously suggested fiscal 2021) to enable higher investment.
Potent combination
As things stand, with a current share price of around 216p and a maintained 15.4p dividend, buyers of the stock today are picking up a juicy yield of 7.1%. They’re also paying just 8.3 times forecast earnings.
I think BT’s cheap rating and Jansen’s previous investment-driven success could prove to be a combination for potent returns for patient investors, which is why I rate the stock a ‘buy’.
