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Agree Fleccy, and to add.
The big variable is the liabilities, the payments from BT are offset against the liability and it’s the constantly moving criteria of life expectancy that primarily dictates this, plus add in the “Real Discount Rate” where a provision is taken against some of the assets (A valuation method that incorporates a higher element of growth assets (for example, equities) will use a higher discount rate.) .i.e increase liabilities to reduce the net value.
The value of the “Real Discount Rate” can be adjusted based on the real world view of value of Equities or Corporate Bond Yields, increase the provision if the Trustees think something is afoot, reduce the discount if the Assets are viewed to be on solid ground. The Discount rate does not inflate assets, or have a positive view, it merely adds more pessimism to value of assets or releases its pessimism.
"Best case. Planets have aligned, Good results, pension much, much better than £7b, BT Sport deal done, interim div at half the 7.7p. Share price up to/close to 300p. "
This is most likely , I saw all this play out last time around during the credit crunch and it will end exactly the same way this time around .With a boom predicted matching 1948's its going to take the FTSE to a new all time high and it is at that point BT pension status changes to surplus . This cloud easily blends into insignificance the moment the FTSE breaks 8000 and BT will be one of those companies helping the FTSE to break that threshold over the next few months.
"Was last year a fk-up and just an inaccurate fouling up in the books with a corrective bill to be suffered this year?"
I very much doubt it was wrong, since it was part of the official published results and was reiterated in the Pension Teach In. The Q4 results advised that the decrease in the deficit was driven by an increase in Corporate Bond Yields.
In simple terms, if they can maintain the value of the assets while paying out the Benefits, then the liabilities should reduce by the amount payed out in benefits, therefore reducing the deficit. Last year the value of the assets held up, due to Deficit contributions and investment returns, with the benefits paid reducing the liabilities by £2.764 Billion; "Changes in discount rate, inflation expectations, mortality assumptions" reduced the liabilities by a further £4.244 Billion, having the biggest impact on the deficit, and is variable dependant on the macro environment, as are the Asset Values.
My personal view is that the deficit will be well below £7 Billion, hopefully we'll find out on Thursday.
Although I lack the expertise to claim so, I have a sneaking suspicion that last year's deficit was a complete balls-up by the trustees/pension committee's etc.,
Because for half a dozen years the deficit has been mostly in the £7bn region and £6bn. With a break in the earlier part when it came out with a daunting £9bn that the media went crazy over.
So the out of the blue ridiculous £1+bn presented last year stunned me with its senselessnes. Compounded by almost instantly the CEO advising don't expect that to carry on next year - we already know it's going to much higher.
What went wrong?
No one questioned it in the media but it stunk to hell. 7's and 6's then bang barely visible at 1bn odd. To now be followed by a corrective potentially explosive increase?
Was last year a fk-up and just an inaccurate fouling up in the books with a corrective bill to be suffered this year?
Thanks Velo, I think my post was a little bit of a fusion between analysts and media reported. My £7b+ was from last year media reporting.....
Last years media update..........“BT’s total pension deficit stood at £1.1bn at 31 March 2020, down from £7.2bn the year before, as liabilities dropped from £59.4bn to £53.3bn, according to its full year results.
Larry - quick note on the market's pension deficit expectations. It's not £7.5bn.
- It's an extremely heavy £9.75bn. That's their "average" forecast.
£7.5bn is their extreme lightest forecast whilst £11.3bn is their worst outcome expectation; but overall their view is to expect nearly £10bn as most likely at £9.75bn.
I prefer no worse than £7.5bn not because I've calculated it, but because it's their best, lightest most bearable to me if they've been too pessimistic.
Statistically their consensus favours an £9.75bn outcome than £7.5bn.
Of the 20+ analysts £7.5bn might at best be the forecast of only two maybe just one in-house analyst (Berenberg) the bulk of them lie in that middle average of £9.75bn. They're quite dour and pessimistic on this occasion.
Are they wrong? We'll soon find out.
Within 3 months.
Worst Case. Results are bottom end of analysts forecasts, Pension is £8-£11b, no news on BT Sport, interim div is circa 2p. Share price 120-130p (slow crawl to 200p for next 3 years).
Bottom-end of Middle case. Results are as per analysts view, pension circa £7-£7.5b, nothing negative on BT Sport, interim div at 2p. Share price +170p (as you were).
Top-end of Middle case. Results are better than analysts view, pension less than the £7b, some positive news on conclusion of BT Sport, interim div at 2p. Share price 195-230p
Best case. Planets have aligned, Good results, pension much, much better than £7b, BT Sport deal done, interim div at half the 7.7p. Share price up to/close to 300p.
So by Xmas who knows, +350p? Xmas 2022 £5??