Member Info for EMMJANE

Lot of talk on Bloomberg last couple days of fund managers switching out of tech to value stocks. If this is flow coming, should be beneficial to bt share price as the wall of money moves in.

Additionally talk of pension funds finding it increasingly hard to diversify portfolios with zero/negative int rates, pushing them more into value stocks

If BT’s pension scheme comes out well funded, it should consider a buy out of the scheme by an insurer. In this day and age this could be very attractive to someone as in reality they only need pension scheme to create 0 per cent return to pay its liabilities when govt yields are zero to negative

https://www.thisismoney.co.uk/money/pensions/article-8797861/What-does-insurer-buy-final-salary-pension-scheme-mean.html

This allows bt share price to rise rapidly knowing it doesn’t have the risks of the pension fund round its neck year in year out

“BT's debt is overhyped and not the issue it's being made out to be.”

Fleccy that’s the point, by can pay down debt, invest in growth and allow investors to appreciate the true value of shares.

Ie I’d rather sp be 500p in 5 years with btvreinvesting dividend and creating net asset value and more profit from reinvestment from dividends than a 200p share price with last 5 years previous paying 10p a year and looking like a good 5 per cent yield stock, when it’s true value can be 500p if it’s seen reinvesting profit into a growth low debt company

Can’t even go cinema nowadays which will help bt tv package sign ups over winter

I definitely not bailing as believe in warren buffet style of trading. I bought the business and the price I paid is the price I paid.

I actually think but shouldn’t pay any dividends for next 5 years minimum as they will return on fttp 12 per cent pa, which is probably lot more than I can make from the dividend payments

However, I am resigned to see 80p before this baby comes to fruition down the road.

But as a business I believe all cash generated should be spent on reinvestment as it is rather than dividends as the returns are great for this business and the need for faster and 5g is a growth business

It was up with talk talk and Vodafone and then bt gave up the ghost and dropped back on its own.

Getting resigned to this testing 80p before properly heading higher.

Lol we struggle to understand if bt share price will go up or down Monday. I don’t think we’re too qualified too the destination of the universe on here yet

Good article fleccy on Covid 19 affect on mortality rates.

I was looking at a possible deterioration of growth assets to tune of 3/4billion since mar 20

I was looking at 0.5 Bln deteriation only on bond yields falling.

And 2/4 billion ish due to credit spreads widening and commercial property falls.

It wasn’t pure science but more of overall mkt performance of those assets and bt sensitivity to these asset moves in their pension

What is also encouraging according to bt investor consensus the deficit is expected to be gbp9.1bln, so if between gbp5b and gbp9b it will be better than expected.

Just picked this up this very informative document on bt investor website that gives detail to the pension and there mar 20 gbp1.1 b deficit.

Please note on page 19 they do state we estimate our deficit materially worsened in April 20 principally reflecting a reversal in credit spreads.

However what is encouraging in 2020, 55 per cent of its assets are matching its liabilities leaving the other 45 per cent In my growth risk assets.

It also gives great detail about mortality assumptions and inflation assumptions.

It appears in the report in conclusion the difference between 2019 and 2020 was not its assets but more liabilities improved significantly, but of course they mention in April they took a material turn for the worse. So looking at detail I reckon the next valuation may come in at region of gbp5 to 9bln deficit. (Not small when mkt cap is below gbp10bln now).

The final salary dB scheme definitely feels a major consideration when investing in bt shares. But same time the shares still appear cheap

https://www.bt.com/bt-plc/assets/documents/investors/financial-reporting-and-news/quarterly-results/2020-21/pensions-teach-in-presentation-slides-july-2020.pdf

Fair value is 65 times. The company will never offer that but some are offering 50 ish times. Basically it’s reval of liabilities will be revalued as 65 times.

However if people take the transfer out offers of say 40 to 50 times, then pe pension fund reports a profit on its liabilities ie 65 times less the actual payout times.

So it would do bt a massive favour if many employees transfer out and its benefial to employees too with the insane low govt bond rates that no one in there right mind would buy annuity at current mkt pricing

According to a very good financial advisor friend of mine, Due to the insane global govt bond int rates of which gbp11trln are in negative rate investments. final salary schemes should be offering basically 65 times final salary in transfer out values to give the same cost as having to buy an annuity.

So effectively if you have a gbp20k a year final salary scheme you should be offered around gbp1.3m as that’s what it would cost to buy a gbp20 k pa annuity with spouse and dependant benefits

Problem is fleccy. Is although govt bond investment gone up that will only be a percentage of the portfolio, whereas the liabilities massively increase ie annuities and transfer out values increase massively to fund a final salary pension scheme. So you could have a pension fund that may of increased by gbp2bln if it’s lucky but liabilities increase by gbp10bln as it can’t invest anywhere to get returns.

Quite old ft article on bt pension, but still relevant information

https://www.google.co.uk/amp/s/amp.ft.com/content/c8168154-e658-43ed-b67b-113f3b6a3238

Bt share price down here is quite amazing really, even with all the known negative news out there ie Covid, brexit, debt level.

The only elephant in the room, that could possibly be pushing this price to insane levels is that pension deficit valuation that is currently being negotiated by start of 2021 with pension trustees for future funding. Naturally with a pension fund and liability to the tune of gbp50bln plus and Covid heaping havoc on any diversified investments ie stocks being hit, negative int rates, corporate bond spreads widening etc, the valuation since the last estimated gbp1bln deficit pre Covid chaos, could be anywhere as creating a diversified pension/investment is extremely tricky at moment if trying to achieve any growth.

Additionally if bt were forced to sell assets to get pension deficit on track that would be a massive problem, as the family silver would need to be sold. Additionally under current bt covenants any asset sale of £1bln plus, by have to pay the pension fund 25 per cent of proceeds anyhow.

It’s the only reason I can see why the mkt may be leaning on the price at these ridiculous low levels.

However, even if the pension deficit does come out pretty horrendous, I do feel over time it will improve as if Covid vaccine isn’t found soon, avge life expectancy will come down, which helps pension liabilities or vaccine is found, pushing asset prices back up and bringing in credit spreads. It’s just unfortunately for bt the worst possible timing for a pension revaluation.

The next results at end of October will hopefully give us a clearer picture.

But for me this is still a massive medium long term hold. Short term the mkt is going to clearly make it uncomfortable for holders if they have overextended their investment on this share.

Indeed. I certainly would never put my pension on one sector alone that’s asking for trouble. In fact in a pension just to be in 1000 different shares globally and no other assets is seen by financial advisor as high risk.

The most important decision of m transferring out is the transfer out value and saying your risk profile even medium risk , some goes into Cash and govt gilts. You can chooose very low risk too which effectively is cash to preserve your pot.

But the most important thing is your current health, transfer out value and your financial advisor recommending you have suitable means to transfer out

This week must of been the least volatile for a very long time ie pretty much 109/112 all week. Hopefully the stability helps investor sentiment as time goes by.

One of the biggest benefits of transferring out is massive inheritance tax benefits

Ie a final salary pension will die with you and your spouse. Whereas a defined pot pension falls outside your estate when you die and effectively goes to whoever you wish tax free (up to the age of 75) it then starts to attract some inheritance tax.

A financial advisor won’t advice on what’s good value or not. All they will do and very few offer final salary pension transfer advice as cost of liability insurance is very expensive and basically you will be charged a lot to move a pot ie moving a final salary scheme to a gbp200k pot would cost minimum gbp5k just for the financial advisor to approve you. As basically they need to prove you can live in retirement with other means to approve you in transferring out.

As effectively you carry no investment risk in guaranteed final salary scheme but transferring out you then carry the investment risk. However the transfer out values are extremely attractive at moment as govt yields so low and that’s what determine the maths calculations on transfer out valuations. Ie that’s why they are as much as 50 times the final salary pension. I’ve transferred out couple of my partners final salary schemes just now into a self invested SIPP, but it was only allowed as other means to live on should that money go to zero under self investment