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An article on page 19 of last night's Evening Standard said, " BT could be the biggest winner from the Super Deduction Schems.... The Scheme means big firms that invest in infrastructure, plants and other large projects will be able to deduct £1.30 in tax for every £1 spent....Today it welcomed the move and said we are expecting to invest significant amounts of capex in plants and machinery over the next several years and to the extent this proves to be eligible for the Super Deduction it could result in a significant reduction in our corporation tax bill for our 2021/22 and 2022/23 years.
LarryBling, while arguing the toss over how many £100's of millions BT are going to be able to add to their profits each year thanks to this new scheme the SP is lifting above £1.35 .
Simple mechanics of value of BT, everybody’s view welcome. Very simple numbers, Let’s say EE is worth 12b, Openreach 20b with ownership of network (I know Fleccy), BT Sport and Consumer £5b R&D £2b and the rest of BT for Global and Enterprise etc at £5b (surely got to be worth 5 times talk talk). Total. £44b. Add the debt and pension liability and the market says £13b. Now if BT was bought for, let’s say £2 a share valuing it as £20b, (some would snap your hand off). If the new owners paid £5b off the debt and £5b into the pension, total cost £30b plus buying costs. How much could the new owners sell it for, £30b? I don’t think so, BT would be worth in excess of £40b plus.
"this would then allow them to benefit from the 30% profit margin available under these plans."
Aus, my understanding is that the 30% is based on the difference between the current 100% business rates relief. on new full fibre installation, and the new Super Deduction benefit. If EE invested heavily in 5G Base station equipment, or built masts, or invested in the associated transmission network, all these costs may be offset against the tax allowance. BT/EE/Openreach investment isn't all about Fibre rollout, I would think there are lots of other opportunities to take advantage of this 2 year handout.
Larry - mostly good, but there is a potential 30% profit to be made on investment.
I’m not saying BT will do this but ....
It is possible in BTs case to reduce investment to 30% less than their current corporation tax payment, this would then allow them to benefit from the 30% profit margin available under these plans.
This would have the opposite, desired effect of reduced investment in BT’s case, this to me indicates for broadband roll out this is a bad policy, because BT can only make profit by reducing investment or..... there’s more policy down the line.
I repeat not saying BT would do this, but by my understanding they could & ac30% margin on investment seems attractive if there’s nothing else in it for them.
Its make BT more attractive to a takeover, yes. Whether that’s viewed by some as lipstick on a pig.
Could the potential tax savings fuel takeovers Larry within the next 2 years?
Fleccy and NDNIC00, not trying to underplay any good news that may be scratching around, but trying to quell any overplay in this news and keep feet firmly on the ground. There are a few views that BT can claim close to the £12b plus 30% or any number close to it, which is incorrect. As I see it BT can (or have a remit to) claim all of the tax they would most likely have to pay for next 2 years, whatever that number will workout to be. So yes BT will have a chance to reduce its tax bill as will a lot of businesses that have a sizeable investment more than the absolute value of its tax liability. For those businesses that are or about to post accounts that are loss making nothing changes from the budget yesterday. For BT any tax reclaim is money in the bank, its money that would have otherwise been paid to the gov. This money can be offset with future borrowing which is immensely good news. BT recorded tax of 619m last year, so whether this was retained in the business as 100% against capital investment, I don’t know, as my understanding is, this could be claimed against plant and machinery (factory and machines) or does it apply to the wider capital investments.
So whether this is the 130% or 30% increase mentioned yesterday, it’s good news no matter.
"ThIs I is a a 130% tax reclaim relating to Corp Tax. These numbers can not be stretched much beyond the £500m for next year and the year after. If investment is ramped up this will probably have an impact on costs thus reducing profit which defeats the object (assuming all costs are not capitalised)."
Larry you seem pretty confident when it comes to Tax issues, maybe you could clear a few things up, with respect to BT's possible tax savings. BT have stated that this will significantly cut their tax bill, so this will have an effect. As I stated in a previous post, the difference between profit before and after tax, for FY 2019/20, was over £600 million; I also assume that the tax paid in the last financial year was reduced, due to the current 100% business rates relief on new full fibre installation, so surely BT will have an opportunity to reduce their Tax bill significantly through bringing forward investment within the next two years accounting period? If they paid £600 million in tax in 2019/20, then projecting the same tax bill for 20/21 and 21/22, couldn't they potentially reduce their Tax bill by over £1 Billion over the next two years? Since Fibre already has Tax incentives, they could possibly invest more in 5G, or other infrastructure to cut their Tax bill.
I can only just do my own Tax returns, so I have next to no knowledge about Tax matters, I'm just trying to understand your point of view.
Larry. “ If investment is ramped up this will probably have an impact on costs thus reducing profit which defeats the object (assuming all costs are not capitalised)”
Yes it could impact on profit over that period, but, it is £1b that can be spent that is over and above the estimated cost of FTTP and 5g rollout. If you take the current time plan for completion we are looking at around 2025-2026, after which costs will reduce at a pace in the following few years. Very little cost in additional network build after that, reduction in staff and there costs and a reduction in buildings and there related costs. So if they have an additional £1b they could spend effectively for free, reduce network upgrade by maybe 12-18 months, then the expected savings at the end of the original timescale start earlier, profit growth could start earlier and rise quicker than planned. A short term drop in expected profit to enable a quicker network build time makes sense, I can see no obvious reason not to look very hard at this as the potential to deliver better profits sooner with almost no additional costs if planed correctly. IMO
Folks, I’ll take any good news relating to BT, but some people on here are getting carried away with the numbers relating to Super D. ThIs I is a a 130% tax reclaim relating to Corp Tax. These numbers can not be stretched much beyond the £500m for next year and the year after. If investment is ramped up this will probably have an impact on costs thus reducing profit which defeats the object (assuming all costs are not capitalised). The Guardian is spot on, BT will have had £4.5b worth of investment this year with similar going forward, so BT doesn’t need to get out of its proverbial fibre investing bed to earn this tax reclaim. As Rod says the Ofcom and Pension reviews are the big ticks.
Ofcom will play ball. So will the pension trustees. Two more ticks and BT is home and dry. About time.
Ofcom not off
Definitely sour grapes from guardian. It’s a win win for everyone as we need to upgrade Britain’s broadband quick so growth and productivity happens sooner to get the debt built up paid.
The tax break allows much more acceleration and Jansen said he can carpet the uk even quicker with tax breaks in his last results. Just need off on to play ball to fit the jigsaw
I love the final comment in the Guardian.
"So yes, Sunak should succeed in getting a few cashed-up companies to invest more rapidly than they might otherwise have done. But is this the most effective use of a £25bn tax break?"
The reporter is describing BT as a "cashed-up" company, which is what everyone knows anyway. The market knows BT is well financed, with good cashflow, which makes the current low P/E look ever more ridiculous.
Sour Grapes from the Guardian
"But there may also be a reason why such a blunt tool has not been used on this scale in the past. As well as encouraging fresh business spending, the Treasury may also find itself rewarding investment that would have happened anyway.
Take BT, whose annual capital expenditure budget is about £4.5bn. Its share price shot up 7% after the budget speech, presumably on the thought of the juicy allowances that can now be claimed over two years for the roll-out of fast-fibre broadband.
If BT responds by getting fibre to premises more quickly, that could be considered a benefit for the nation. But the gain may be marginal since the programme is well under way. Any acceleration may also be concentrated in cities, where it is easier to speed up, rather than rural areas.
So yes, Sunak should succeed in getting a few cashed-up companies to invest more rapidly than they might otherwise have done. But is this the most effective use of a £25bn tax break? It feels unlikely."
"BT, Britain’s biggest broadband and mobile provider, said the “super deduction” tax break for investment announced by the government on Wednesday would significantly cut its tax bill for several years."
You won't float Hi-hi, because of your weight issues :)
Silly old fool!
" (But as said the whole thing is larger than today's price action, so it still poses a threat). "
- When the 3 subsequent bearish days that followed are also added as 'the whole thing'.
Oops - IMO only.
Mr Woo @ " Is. Mr Velo ready to buy back in now 134p has been breached? "
- Sorry, only just seeing that; missed it earlier.
Yes but have to balance that, against an end to Thursday that doesn't close in the bull 'trap' zone of circa 132 to 134 or worse - even lower.
Obviously the SP can't just keep rising forever, but needs to close sufficiently far away above that SP area, so that say a couple of days of retracing would still close above that area until there's yet another big price action day (in either direction) in order for new floors to become established.
For the moment the big bearish day back in early Feb from the Q3 results publcation day (Feb 4th) that resulted in that day being hugely bearish and the subsequent 3 days of continued smaller bearish falls, still exert an influence.
The total distance of that price travel on Feb 4th still exceeds the big spiky price action today; hence would like to see a couple of (probably smaller) days bullish action added to it, before a red day appears.
Wednesday's bullish close was only just clear of that Q3 bearish day by mere fractions. (But as said the whole thing is larger than today's price action, so it still poses a threat).
Okay, so it’s all looking clearer after BT’s press release. It sounds like this is only 2 years relief, based on what they are saying, they do not see this as an opportunity to spend massive over two years, then claim tax relief over many years, so this doesn’t look anything other than saving from their corporation tax bill over 2 years (not brilliant in my opinion for a 10 year build or to replace £5bln promise)
This also pre-supposes this investment will qualify.