Member Info for fleccy

Candid your repetitive rants are indicative of obsession. You should take a break from posting, take walks in the sunshine, maybe go on holiday, you're displaying the symptoms of an unhealthy mind 🏥

Candid you appear to be on Time and a Half today, working very hard on the negative spin.

Hey Candid, if BT does get to £10 we'll be showing a paper gain of £1.2 million on our BT holdings alone. Not bad for dividend reinvestment if it happens 😜

"The chances of £10 a share are ridiculous . No chance.

It will be £3 and 3.50 if we are lucky by 2030"

You may well be right, but a £10 valuation doesn't feel as ridiculous as it would have 5 years ago, even though BT's long term strategy hasn't changed since then. Personally I love undervalued shares, but we already hold over 140,000 BT shares, nearly the same amount of Vodafone stock and more than twice as many Lloyds shares, so our latest investment was in BP.

I mentioned RR in a previous post, in reference to how stocks can climb to dizzy heights based purely on market sentiment, a comparison between RR and BP makes my point:

RR currently has a Market Cap around £81.5 Billion, BP has a Market Cap of £60.2 Billion

RR generates revenue of around £18.9 Billion, BP generates revenue of around $187.4 Billion

RR generates £1.54 Billion Free Cash Flow, BP generates $17.15 Billion

RR has a dividend yield less than 0.7%, BP has a dividend yield of over 6%

The fact that RR has a valuation more than £20 billion higher than BP's, should tell you that it isn't as ridiculous as it seems to suggest that BT could hit £10. The market seems to have lost sight of fundamentals and appear to base valuations purely on sentiment. Investments like crypto and Bitcoin, which I consider worthless, should explain that valuations in the current dysfunctional market are based purely on narrative, with valuation's based on nothing more that the story.

I'll happily entertain explanations as to how RR can be worth more than BP, I don't see it myself.

In light of the above, is it ridiculous to suggest that BT could be worth £10 a share in 5 years? I don't think so.

I'm not one for share price predictions, but it'll be awesome if the figures in that article come to pass. A couple of years ago I would have outright dismissed what appears to be outlandish predictions, like BT hitting around £10 by 2030, but after seeing the meteoric rise of Rolls Royce from around 38p in 2020 to the current price, anything's possible.

https://www.google.com/finance/quote/RR:LON?window=MAX

"Why you feel the need to keep supporting fleccy's flawed dividend reinvestment argument baffles me. For starters, what people say is not always the truth"

Every investment strategy has its flaws:

Chasing growth means your money is tied up while you're waiting for said growth, and if something goes wrong you could lose your entire investment. Not all growth companies succeed, a good example of what I'm talking about is WeWork; SoftBank Vision Fund invested approximately $16 billion in WeWork, with the company being valued at around $47 billion at its January 2019 peak, look what it's worth now, ouch. I never could understand the investment case for WeWork, since Regus has operated a very similar business model for decades, and is a well established company.

Day/momentum traders are at risk of getting caught out, they rely on winning more bets than they lose and many make little or no profit.

Value/dividend investors, like me, risk being locked in for long periods and dividends could be cut or reduced as you've pointed out.

During Covid BT dropped down to around £1 a share, we missed the bottom but did substantially top up our BT holdings at around £1.06 and £1.12. Once the dividends restarted, at half the previous level, we were actually bringing in more dividends than before Covid. As well as reinvesting dividends, we also topped up with more capital while the share prices were depressed and therefore increased our annual dividend income. As a result of the reinvestment and topping up, in periods of low market confidence, we're now seeing a paper gain approaching £100,000 and an annual tax free dividend income of over £27,000 across all our holdings. I'd say our strategy is working.

We haven't done too badly on our BT investments Candid.

If I remember correctly our initial investment in BT was around £3, by reinvestment and adding new capital we've brought our average per share BT price down to £1.72, and currently seeing a paper gain of just short of £35,000 on BT; Add to that an annual dividend of around £11,500, not bad. We did recently sell 16,000 BT shares, and 14,000 Lloyds shares, as part of a tidying up and movement of investment cash out of a standard share dealing account into the ISA's, we then bought BP and topped up Vodafone in the ISA's.

"You and the fellow militant engineer members of your crew have a different agenda from myself. You want BT to stay the same, allowing you to continue riding the gravy train in perpetuity"

Candid you appear to be confused about my employment history. I have mentioned this before, but as a reminder, I have never worked for BT with my only interest being our shareholding. I'm ex Mercury/C&W/Vodafone and invest in BT because I see Telecoms as a solid investment, even though the market has disagreed with my view over the last 10 years.

"However, they still think that the network can't be sold until at least 2030. That is speculation, just as we speculate. Big change is coming"

Candid you should ask AI why Openreach is still a part of BT. Since the pension scheme is still in deficit, with the plan to put the scheme in surplus in the early 2030's, it stands to reason that BT will retain Openreach until the pension deficit is no more.

With correct prompting, this is AI's opinion:

"Ofcom did not force BT to sell Openreach in 2017, despite earlier considering a full legal separation, because BT agreed to a voluntary structural separation that addressed Ofcom's competition concerns. This agreement involved making Openreach a legally separate company with its own board and strategic decision-making processes, while remaining a wholly owned subsidiary of BT. The main reason for not pursuing a full sale was the potential impact on the BT Pension Scheme, which had a significant deficit and where a separation could have created significant financial and logistical challenges"

Anyone who followed BT as far back as 2017 would remember this and realise that the situation hasn't changed, and wont change until the pension scheme goes into surplus. Clearly stating that Openreach wont be spun off until the 2030's isn't speculative, it's based on the reasoning behind the 2017 decisions by both BT and Ofcom. I'd agree with you if the pension scheme goes into surplus before 2030, but I'd be speculating to suggest that's a possibility.

"These service providers do. It need to move everything to cause damage, they only need to reduce their reliance on openreach to have an impact"

I don't disagree, but competition works both ways. The Altnets have accumulated a lot of debt, uncovered by revenue, so while their builds continue the interest on the debt is also uncovered by earnings. Since BT is considered an SMP, BT is currently being held down and prevented from competing in any meaningful way; For example, OFCOM have to agree to any pricing offering's, as in case of Equinox 1 & 2, also look at the way OFCOM jumped down Philip Jansen's throat when he made his comment that the Openreach fibre push will "end in tears" for rivals. Jansen left the company abruptly soon after OFCOM threatened BT following his comment, yet it's open season for those same "rivals" to make derogatory comment's about BT/Openreach. All this highlights the financial tightrope that BT's rivals are walking, otherwise OFCOM wouldn't openly chastise and threaten BT for a throw away CEO comment, when comments flow freely in the other direction.

" It was in fact the CEO who said she would do something different with Openreach if its value wasn’t included in BT valuation"

Reading between the lines, for a long time I've been of the opinion that Openreach will eventually be completely spun off. I believe OFCOM and BT have probably agreed, on the quiet, that the aim is to eventually make Openreach a company in it's own right, with BT owning less than 50%. The one thing I can think of stopping BT spinning it off now, is the BT pension scheme. My guess is that the pension scheme will subject to an insurance buyout as soon as it goes into surplus, Frank Naylor (ex CIO of BT Pension scheme management, now retired) implied as much in an interview around 4 or 5 years ago; I can no longer access the article as it now appears to be behind a paywall.

As far as the doom and gloom scenario suggesting that BT/Openreach's wholesale customers might all jump ship, highly unlikely and if it did happen BT would just utilise the whole of the Openreach managed infrastructure to offer in house ISP services through the likes of Plusnet and EE and directly compete with any competition.

Aus Communication providers like VMO2 can backhaul to their own mast where they have fibre coverage, like urbanised areas, but BT/Openreach are the only provider with duct and pole coverage of the majority of the countryside and semi rural areas. Mobile Network Operators need full national coverage, so they have limited choices for the majority of the country. They could use satellite for backhaul, or Openreach. Fibre to the cell is far more reliable and offers more bandwidth than backhauling through satellite. No other provider will be able to compete with EE on coverage, because BT owns the infrastructure covering the majority of the country.

UK.

My wife doesn't work and a portion of the shares are held in her standard share dealing account. Without any other income a UK shareholder can earn £12,570 before being liable for income tax, plus there's also a dividend allowance of £500, meaning she can potentially earn £13,070 in dividend income outside of a stocks and shares ISA. My wife is well below that limit and the rest of our shares are held in ISA's, which are free of any tax liability.

We're now only reinvesting any excess dividends annually and then only reinvesting any left over cash after spending on life. This purchase should take us over £27,000 a year in annual tax free dividend income, we're not overly bothered what the share price does in the short/medium term.

I like the dividend yield of over 6% and there may be an outside chance that the Middle East could kick off again, you pay your money and take your chances.

" thought that too, fleccy. I like the brief spike to £1! Is there a hidden meaning?"

I haven't looked back through the trades, but I think it was the spike that made the chart look strange. The near 30% spike opened up the range making the rest of the chart look smooth(ish)

5,699 BP shares.

Today

https://www.google.com/finance/quote/VOD:LON

We have discussed this on various previous occasions, any valuation of Openreach would be dependent on the contracts they have with BT, various CP's and Altnets who use Openreach services. As an example of a comparable company, although providing different types of services, look at Mitie categorised as a "facilities management and professional services company".

Any valuation of Openreach would be based on their Revenue and Net Income; Also an independent Openreach would be open to bidding for management contracts of other Altnet networks, any market valuation may price in growth prospects from chasing other potential business.

From a QBT investors point of view, strap on would have been a more appropriate metaphor.