Stock in FTSE 100 telecommunications giant BT (LSE: BT-A) fell heavily in early trading, despite the company revealing a “solid set” of Q4 and full-year figures alongside a raft of developments designed to get it back on track following an issue-laden 2017.
A sticky period for its enterprise business due to “challenging market conditions” and the firm’s move “to exit lower margin business” led to reported revenue dipping 3% in Q4 to £5.97bn. Total revenue for the year came in 1% lower at £23.7bn.
On the flip side, profit for 2017/18 moved 11% higher at £2.62bn with Q4 seeing a 98% jump to £872m due to “specific items in the previous year“. At £3bn, free cash flow also came in higher than previously estimated.
Looking ahead, revenue for the current financial year is expected to be around 2% lower with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) somewhere between £7.3bn and £7.4bn.
More job cuts
In truth, today’s numbers were little more than a sideshow. Of far more interest to shareholders was an update on the company’s strategy.
Arguably the most significant announcement was that 13,000 back office and middle management jobs would be cut over the next three years at a total cost of £800m, adding to the 2,800 roles already removed as part of BT’s restructuring programme (which delivered savings of £180m over the last financial year). The company did, however, state that it would be hiring an additional 6,000 engineers and customer service staff.
In other news, BT has agreed on a new 13-year recovery plan for addressing its troubling £11.3bn pension deficit. This will include £2.1bn in payments over three years to the end of March 2020 plus an additional £2bn through the issuance of bonds. According to CEO Gavin Patterson, this plan of action should draw “a line under a key source of uncertainty” for BT’s owners.
Aside from the above, the company also announced that it would leave its current headquarters in central London and relocate to smaller premises.
For patient investors only
With the share price now at levels not seen since 2012, does it make sense to call BT one of the best bargains in the market’s top tier or a value trap to be avoided? So long as prospective owners are sufficiently patient, I’m still inclined to suggest the former.
Before today, BT’s stock was trading on just nine times expected earnings, implying that a lot of last year’s problems were already priced-in by the market. Today’s drop will only serve to make the shares more attractive to contrarians who feel that the company’s market-leading position and brands are being overlooked.
Clearly, bringing a juggernaut like BT back to growth will take years (three, if you believe management). For now, however, existing holders can console themselves with the fact that the company’s huge dividend payments remain intact. A total payout of 15.4p for the 2017/18 financial year — identical to the previous year — means that BT continues to defy those predicting an imminent cut.
Buying stock in one of the most hated shares in the FTSE 100 right now certainly takes courage. So long as those taking the leap are content to hold for the long term, however, I continue to believe that BT’s stock is worth consideration from investors seeking shares with a decent margin of safety in an unpredictable economic climate.
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