RE: Investors chronicle26 Nov 2021 08:32
Otherwise BT could face the prospect of having to spend money on rights in order to have a worthwhile asset to sell. That said, its all important Premier League football rights are already agreed until 2025. It was reported earlier this year that talks were in progress with established streaming services over a potential sale or a joint venture, but there has been no further news.
The other division that looks increasingly out of place is BT Global. The division, then called Global Services, was the source of a huge accounting scandal in Italy that emerged in 2017. The £530m accounting fraud is still an ongoing issue, even though BT broke up its Italian division and sold it for scrap to Telecom Italia in 2020, as several former BT Global Services executives are currently answering fraud charges.
Since assuming the reins as chief executive, Jansen has sold off peripheral parts of Global, including a Latin American subsidiary for £110m. However, the sheer scale of its global operations means downsizing has proved to be a long process, with an often notable absence of willing buyers. With that in mind, a simpler solution might be a straightforward spin-out of Global into a separate listed company, leaving BT as a focused broadband fibre and mobile network supplier in the UK.
Getting rid of Global would not make a huge difference to the company's bottom line. For example, at the last annual results Global generated £3.73bn of revenues, but just £191m of operating profit for an operating margin of 5 per cent. By contrast, Openreach had sales and operating profits of £5.24bn and £1.23bn, respectively. In other words, Global seems barely able to cover the cost of its operations.
Cheap as chips?
Whatever ultimately happens with Drahi as a potential bidder, BT is turning into a fascinating corporate story in ways that does not relate to its propensity for self-inflicted wounds. The business looks far more focused than it did in 2019, when the current chief executive took over, and any new management action would build on those foundations. In pure valuation terms, the shares look cheap by almost every measure and hold steady at a price/earnings ratio of barely eight times Berenberg’s EPS forecasts for 2023 – this for a business that has historically generated a return on employed capital (ROCE) of 10 per cent. It is true that ROCE has been heading down, but with a free rein on fibre pricing, margins are forecast to improve from here (see table).
Drahi’s investment seems to have put a floor under the share price, which is a welcome first step, and news of a private equity bid for rival Telecom Italia may have sparked some fresh momentum. The extent to which BT’s new fibre network delivers recurring revenues on top of its huge capital investment will be important for share price progress, too. That strategy could return BT to being a stable and predictable source of investor returns. Remaining a sprawling and unconnected pseudo-conglomerate
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