4 big questions hanging over BT Group plc

Royston Wild looks at the key issues battering BT Group plc (LON: BT-A).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

To describe the past week as a nightmare for BT Group (LSE: BT-A) would be a colossal understatement.

News of a massive accounting scandal at its BT Italia division has grabbed the headlines, the news shaving £8bn off the telecoms giant’s share price and sending the stock to its cheapest since the summer of 2013. But this isn’t the only problem on BT’s plate.

Accounting woe

However, let’s start by discussing the troubles at the company’s continental division, especially as speculation mounts that BT may not have a clue concerning the full scale of the accounting scandal.

The business first flagged up the problem back in October when it warned an “initial investigation into inappropriate management behaviour” revealed a £145m black hole on the balance sheet. Three months later and this figure has morphed into a quite-staggering £530m.

The fault is anticipated to smack adjusted revenues and EBITDA by £200m and £175m respectively in both fiscal 2017 and 2018, while net cash is predicted to take a £500m hit this year alone.

And this may not be the end of the story as BT now embarks on a group-wide assessment of its financial processes, systems and controls. This is a move that could reveal even more problems.

Pension problem

The sizeable whack for BT’s balance sheet is an added issue as the business deals with its gargantuan pension liabilities.

Industry experts have valued BT’s pension deficit at between £9bn and £10bn, although an accurate picture of the shortfall will become clearer when the business conducts a formal review in June. Investors need to be on guard as rising retirement-related costs could have a crushing effect on BT’s ability to keep dividends growing year after year.

Market turbulence

BT’s precarious financial health is also a problem as the business draws swords with Sky, with both companies locked in an expensive arms race to furnish their television platforms with the cream of the sporting world.

For the time being these measures are helping revenues at BT’s Consumer division to keep marching higher. But BT still faces top line turmoil elsewhere, the company announcing this month that it faces a “more challenging outlook in the UK public sector and international corporate markets.”

Broadband bother

Meanwhile, BT’s fight with Ofcom over the future of Openreach adds another layer of uncertainty to the firm’s long-term profits outlook.

The company tried to curry favour with the regulator this week by announcing that Sir Brendan Barber and Edward Astle would be appointed to the board of its infrastructure arm.

But Ofcom has poured cold water on the news, and advised that “these changes fall short of our requirements for a legally separate Openreach that delivers for all of its customers.” The body added that “we intend to take our plans to the European Commission this year.”

These pressures are likely to cause BT to keep raising the amount it invests in the UK communications network. Having said that, any measures the firm takes to placate the regulator are unlikely to silence calls by the company’s rivals for Openreach to be fully hived off completely.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »