Labour’s ‘free broadband’ threat to the BT share price, and what I’d do about it

Does Jeremy Corbyn’s plan to nationalise part of BT (LON: BT-A) mean we should avoid the shares? Here’s what I think.

| 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.

Last Friday I read a headline, “BT share price crashes on Labour nationalisation threat” (or words very close to that), so I turned to the BT (LSE: BT-A) share price pages to see the extent of the carnage. And you know what? The price had only dropped a couple of percent. And by the end of the day, BT shares had closed just 1.1% down.

Under-reaction?

When the leader of the Labour party has vowed to nationalise your broadband business to provide free fibre access to everyone, you might expect the markets to react a little more negatively than that – unless, of course, they don’t expect it to actually happen.

I’m slightly active in local politics in a Labour stronghold, and I’m surprised by the amount of animosity I’m detecting towards Jeremy Corbyn from lifelong Labour voters. This coupled with the way the polls are going, makes me think his chances of building a 60’s socialist utopia in this country are slim at best.

What would I do as an investor? I did wonder whether it’s worth trying to short puppy farms in case Boris decides to get in on the freebies act too, but I didn’t find any listed ones.

But as for BT, the idea of Labour handing out government bonds to shareholders in compensation for taking their shares, with the amount determined by ministers at nationalisation time, is anathema to those of us who see free market principles as the least worst approach to price setting that we’ve come up with.

No need for fear

I think my colleague Paul Summers has nicely summed up the reasons not to be afraid. In short, even if Labour were to win the forthcoming election, the cost of its lofty ambition would likely be way higher than the £20b figure that the party seems to have plucked out of the air. As Paul pointed out, BT chief executive Philip Jansen has put the likely cost at around £100b.

The other key point is that the timescale is likely to prove prohibitive. I reckon the 10 years they’re talking about is a big underestimate, and I rate the chances of Jeremy Corbyn being PM for long enough to even get close to achieving it are close to zero.

Do you remember when David Miliband was heading the Labour party and had far less ambitious nationalisation ideas? What, you don’t even remember who he is? Radical election promises come and go, and business just carries on.

No change

I’d evaluate BT shares today in exactly the same way I would have done a week ago, on the merits of the company itself while ignoring distracting noises from politicians.

The BT price has been on a steady slide for years, losing 65% since a November 2015 peak. On key fundamentals, that makes the shares look cheap – a forward price-to-earnings of only eight, with dividends set to yield 8%.

But BT is an example of a company whose dividend policy infuriates me – it’s suffered a number of years of declining earnings and is shouldering huge amounts of debt, yet is handing out dividend cash like there’s no tomorrow.

BT needs to get its cash priorities sorted before I’ll consider buying the shares.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

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 »