Member Info for tony2119

Completely agree with you. At that point they’ll, the gov, be forced to compensate BT for their investment using a formula capturing capex + a market rate of return (probably pretty low market rate). BT will argue for a payout based on future cash flows not sunk investment.

Someone was arguing that BT are being forced to build in the less populated areas? Who’s thinking that, they aren’t being forced at all. They have proposed to build in these areas as long as they recover upfront costs and ofcom have accepted this in principle!

Because no one in the investment community knows how to value FTTH networks. That’s because they are new and the payback is over such a long time that a slight adjustment to pricing, interest rates, any assumption really will have a massive impact on the valuation. Google Australia’s NBN. I’ve read that valued at between 12 and 100ml Aussie dollars over the past 12 months.

So instead analysts look at free cash flow which is easy to understand. And they see it declining, with cash being sucked up by the FTTH build which they can’t value. They also see loads of huge risk in ofcom and the pension liability. That risk is real.

They also don’t care about the 5 year view. The people who pay for analyst research manage funds, and the fund managers care about hugging the index each and every quarter. This is an outcome of the growth of passive index funds. The downside risk of performing lower than the index is much higher than the upside risk of outperforming the index. So their mantra is - don’t try to be a hero, just don’t f@ck it up. The analyst commentary provide recommendations to try and help them achieve that.

It may not make sense to you or I but the majority of investors aren’t prepared to sit around and take a long term view.

That is why I visit this forum because the people who have the best insight into the long term worth of BT are honestly the techies...

Yeah agreed. Investors can create their own dividend by selling some shares as they appreciate too which should be the case if the reinvested cash is put to good use. Tax difference isn’t that big.

Exactly. And how’s Openreach meant to price a long term deal without knowing how their returns will be regulated?? It’s easy for CityFibre. They are only building in areas of high competition where pricing will be unregulated. It’s the more remote 1/3 of the country where BT want a return guarantee as they bloody well should. Problem with Ofcom is that it is chock full of fusty anti-capitalists who think destroying private enterprise is a good thing.

Here’s the link

https://www.afr.com/chanticleer/nbn-co-s-worth-up-to-100b-20200921-p55xp8

22 times EBITDA. What’s BT? 3-4 times??!!

I’m also watching very closely what happens to the NBN in Australia. That’s nearly built and the gov there are anxious to flog it off. There are differences between the networks but even so the sale multiple will be used as a comparable for valuing Openreach’s FTTH network. Th

I

NBN Co's worth up to $100b

The firm suddenly looks the best asset a federal government could have when budget deficits are blowing out. Its latest corporate plan points to the business possibly repaying more than the money invested in it.
Sep 24, 2020 – 12.00am

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In the space of 24 hours, Communications Minister Paul Fletcher and NBN Co chief executive Stephen Rue have blown up three of the most commonly held beliefs about the government-owned wholesale broadband network.
First, there was a pervasive view that NBN Co would never make an adequate return on invested capital. It would be a white elephant that would remain in government ownership for decades.

Paul Fletcher says by 2023, 75 per cent of fixed-line premises will be able to order 1 gigabyte per second broadband. David Rowe
Second, there was a widespread perception that, at some stage over the next five years, the federal government would have to write down the value of NBN Co by billions of dollars.
Third, there was a widely-broadcast message that Australians would not have to pay high prices for super fast, fixed-line broadband.
All three of these beliefs can safely be consigned to the garbage bin.
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NBN Co’s 2021 corporate plan, released yesterday, forecasts the business will have earnings before interest, tax, depreciation and amortisation of $4.5 billion by June 2024 on the back of annual revenue of $6.2 billion.
The company will still lose $900 million in fiscal 2024, but it is clearly on track to earn a net profit in 2025.
NBN Co is an infrastructure business similar to companies with reliable cash flows – such as Transurban – which is valued about 29 times its 2021 estimated EBITDA by Macquarie Research. This reduces to 23 times in 2022 and 21 times in 2023 as conditions normalise post-COVID-19.
Another proxy for valuing NBN Co is Telstra’s NBN cash flows, which are paid by NBN Co to Telstra for use of its pits, ducts and pipes. These are valued by analysts at UBS using a multiple of 16.
Enterprise value
Using a blend of these valuation multiples it is not unreasonable to say NBN Co could have an enterprise value of about 22 times its $4.5 billion EBITDA, or $99 billion in 2025. Of course, enterprise value includes debt.
NBN Co says it will have about $27.5 billion in private debt by 2024 as it replaces its government borrowings with mo

Yeah agree. They are spending a billion more a year in capex than normal at the moment. Once that passes it’s 2.2 to 2.5 a year cash flow. That is to equity, after debt. At 10x FCF it’s a 22-25bn market cap. Just got to hope there aren’t too many bad breaks along the way with regulation, pension top ups, etc. I am betting there won’t be but that’s why the share price is bombed out

Re the accounting standards change net profit shouldn’t really move. It’s EBITDA, EBIT, debt and operating and financing cash flow that moved. Basically operating leases are now capitalised and expensed as a finance cost rather than operating cost. So you get higher EBITDA plus EBIT and higher debt. Reported leverage actually should have probably decreased

Could happen. I'm only saying that this is not a new thing. On balance, I don't think it will make things worse across BT's consumer metrics. I would expect share of broadband of ultra fast to be higher than if Covid hadn't happened for instance.

If you look at most of the job losses they are lower skilled workers in lower paying jobs. How many of these people were paying a premium to BT in the first place?

That has been going on for years. The U.K. must lead the world in price comparison websites. People try and save money through groceries and utilities so they can afford £3 coffees. The kids losing their jobs always shopped around to start with.

So that’s not new. What is different is the need for a good connection for many more people, for home working, entertainment cause they aren’t going out, sports which they no longer pay shedloads to watch live etc. And many many more people, the vast majority, will have more disposable income. I do, as does everyone I know. I am spending nothing on travel for instance.

Let’s wait to see what the next quarterly results show on this.

I’d take 10% return in this market and be very satisfied even if it keeps rallying. I’m in it for the long haul but probably have a different target return

Why do you think it’s for the good of the country?

My problem is this - what great, intrinsic UK ability or potential is being stymied by the EU? I don’t get it. I am not from the U.K. so don’t have the history. But the billions spent in Brexit could surely have been better spent elsewhere?

Wanting complete sovereignty is fine, that’s a valid reason and worth something. But surely not the total cost of Brexit...

He’s right Velo. It moved on the inflation + cost increase and Bloomberg article

He’s right though. Cautious in England too often means bed wetting fearful. Don’t wish for Trump America but at least there’s an urge to get back to doing things. Many people in this country would rather munch biscuits while on furlough

Agree. Mortgage availability too. With rates so low financing is cheap and many people have built deposits over lockdown / past 6 months. The extra cost of servicing a mortgage vs renting is very small. Provided the banks lend and don’t really tighten up lending criteria

Very positive comparable!

Net debt at 29bn + equity at circa 10bn, 40bn EV.

EBITDA circa 6bn.

So just shy of 7x EBITDA.

It will be very interesting to see what mortality assumptions they use. Because very low long term yields imply no / very low economic growth and there is a very established negative correlation btw mortality and economic growth. Plus Covid Health risk S too

His position on the pensions makes ‘half sense’ unless he has insider knowledge or is an analyst. The portfolio will be heavily immunised against yield changes. Unless you work on the account you wouldn’t know whether the cash flows are matched or the duration is matched. I know enough about finance to know what I don’t know and I don’t have an f’ing clue what will happen to the pension deficit. There is also the fact that cash flows not debt are most important and debt is now a whole lot cheaper so a larger deficit is going to be cheaper to finance. Again I don’t know how a punter can have an informed view of these things

BT is a great stock to trade. Like Taylor Wimpey or DS Smith. Fundamentally strong business with low valuations. If you mistime it, fine, who honestly consistently picks the bottom? If you get it right you can make a return quickly because the market is so volatile

Definitely loads of opportunity to trade the volatility. I remember when a 1% move in a stock was something!