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Nice calm balance in the market's reaction to the analysts downbeat Q4 consensus forecasts. I've continually held the recent view that the sharp reaction to the Q3 trading update became so severe that the SP technically entered an oversold condition.

- Oversolds in BT have mostly been very predictable over the years. The oversold condition looks quite mature now, to me. Is this calm reacation to the Q4 forecasts indicative of seller exhaustion?

Not out of oversold just yet, but recent 5 days or so looking encouraging. Staying wary until a clear lift out of oversold.

It's not a view on whether it's debt or running costs but taxation. If you do a sale and leaseback on your own home and never move out, but become a renter, the capital gain you make on the sale portion is part taxable.

That's the issue. You can not spend the say, hundreds of thousands capital gain, from the sale tax - free of taxation. It's only free of taxation if used towards buyinng another home.

Likewise, a company must declarethe capital gain as a form of income/revenue.
Surely the leaseback portion then becomes a running cost - if the taxman deems it an essential cost to running your core business? If not it would be disallowed as a tax deductible running cost.

" A sale and leaseback situation arises where land or an interest in land is sold on the basis that the purchaser must grant a lease back to the vendor, or a person connected with the vendor. ... rules which treat a portion of the sale price as income rather than capital in certain specified circumstances (CTA 2009, s 225) "

Oh bugger! I'm tiring!

In the REVENUE post only - replace 'net profit' where mentioned - with REVENUE.

The new Consensus REVENUE forecasts for the next 3 years (The market will have the first opportunity to react or not, on the new entire forecasts tomorrow, as they only appeared on Saturday morning).

Here's what they forecast on the 25th Jan on the last Q3 updates dated 24th Jan.

Consensus REVENUE forecasts three weeks ago on 24th Jan -

Current year now, their forecast is for
2020 = £22,975.5m net profit forecast

Next year -
2021 = £22,795.5m net profit forecast

The year after that -
2022 = £22,800m net profit forecast.

----------------

NEW Consensus REVENUE Forecasts Dated as 14th Feb:

Current year now, their new forecast is for
2020 = £22,874.5m net profit forecast

Next year -
2021 = £22,611.m net profit forecast

The year after that -
2022 = £22,575m net profit forecast.

Notice that REVENUE is forecast to fall below £23bn whichever dated forecast you look at, but the latest forecast has been downgraded slightly deeper than the earlier 24th Jan forecast, as has the net profit forecasts.

As the market prices-in the future, the question for tomorrow is - was all this expected after Q3 and therefore 'baked-in' and thus no further deep falls in the SP,
or will they react badly as if this is another 'unexpected' downgrading?

-------------

Don't want to post PRE-tax profits so only ask if your very life depends on it, as I'm done now and off for a cuppa

Right, here are the new Consensus forecasts for the next 3 years (The market will have the first opportunity to react or not, on the new entire forecasts tomorrow, as they only appeared on Saturday morning).

First off, here's what I posted on the 25th Jan on the last Q3 updates dated 24th Jan. See how the new forecasts have all been lowered after the Q3 results.

Consensus Net Profit forecasts three weeks ago on 24th Jan -

Current year now, their forecast is for
2020 = £2,029.5m net profit forecast

Next year -
2021 = £2,154m net profit forecast

The year after that -
2022 = £2254.5m net profit forecast.

----------------

NEW Consensus Forecasts Dated as 14th Feb:

Current year now, their new forecast is for
2020 = £1,983m net profit forecast

Next year -
2021 = £1,999m net profit forecast

The year after that -
2022 = £2043.5m net profit forecast.

Notice that net profit still increases year after year, just not at such a higher level as they forecast 3 weeks ago.

-----------------
Will post Revenue separate to this

Not for one moment do I pretend to understand this IRFS carry on. The issuance of these amendments appears endless.

So bare that in mind if your opinion, or preferably knowledge, differs to what follows.

There appears to be a misconception (IMO) that due to fiddly bureaucratic financial regulations the authorities are putting companies through hell, forcing them to re-state accounts twice over every year, and making things look twice as bad, as referenced by this typical quote from below:

". . . A big chunk if the debt is due to lease liabilities under IFRS16 reporting rules, BT didn't, all of a sudden, take on another £6 billion in debt in 2018. . . "

Again IMO that's misleading. On the contrary, that billions of debt was always there in the first place, but older regulations allowed companies to legally "hide" it away from tax authorities scrutiny or/ and from investors who only looked at key metrics. There was nothing underhand by either the companies concerned, nor the regulatory authorities. It's main purpose is transparency. Wouldn't you really want to know the full net debt of a company and not ignore what could be legally hidden from sight, previously?

It works both ways. I see many companies reporting twice due to IRFS without incurring difficulties with how debt is displayed. Clearly those with debt 'problems' have the most to lose when told previous conventions are no longer valid and full transparency is ratcheted up further. I have a complex piece saved somewhere, where the tax authorities demonstrate that a company can cancel a debt agreement by redrawing it so that the cancellation releases a "profit" which gets shunted straight through down to net profit, enhancing the performance of that company. The claim is no one is allowed to generate revenue without it being subject to taxation scrutiny before being allowed to deposit it as net profit without tax deductions first being laid against it.

So, some things are for transparency, some for taxation benefits in the taxman's favour, and some things impact the bottom line. Overall it's to protect all of us as investors, lest any devious execs cook the books with outdated reporting methods and conventions.

A word on Net Profits, particularly should they end the year at sub £2bn - No one is interested in net profits!

Only the larger, pre-tax profits. And then they meddle with that, adjusted or reported, depending on which media outlet you read.

As far as I can tell, I'm the only one in the world interested in net profits. And that is a bad sign of neglect in the market. What is the target - the ambition of every investor in the stock markets? Surely it's to receive a return from your investment? A gain in capital value must objectively be because a company is doing so well, that eventually it will return even higher value to investors? But what if it never produces a profit? - You have to know it's progress.

Just recently VOD in it's own Q3 results, didn't even supply, nor comment on pre-tax profits let alone Net Profits. How is that acceptable? If invested there, you can't even say what level of pre-tax or net profits VOD is producing - you have no idea. And the CEO is a former CFO of the same company, so it's no oversight.

Understandable in this case as I'm "fairly certain" VOD is evading all mention of facing another trading loss. In fact 99% of companies never mention net profits in trading interim updates - ever!

(BT is by far and away one of the most transparent companies on the market - and no wonder, as you'd expect that from the world's earliest and longest lasting telecommunications company still trading and still in existence - none are older than BT.)

And media analysts, don't care either.

So if BT's net profits fall below £2bn - it may go unnoticed, as everybody's head will be full of whether pre-tax profits are up or down.

That's all on that subject.
-----------

Couple of other points to mention from the new Q3 forecasts, but first a separate personal view on this IFRS business.

" Are you still convinced that BT,s profit will be above £2 billion?. WATCH THIS SPACE!!!! "
----------------------

Avro, well I am - for this year ending at least anyway, I'm 'fairly' certain BT can haul in £2bn in net profits.
Here's why:

I think the forecasts are overly bearish as 2 out of 3 of the last quarters of forecasts have missed the mark to the underside considerably. The new full year consensus forecasts for net profit are averaging £1.983bn.
So yes THEY are forecasting under £2bn. (But look at their track record this past year - 2 misses and 1 hit).

To check on that sub £2bn, I added back, starting with this new Q4 forecast of £450.5m and added the 9 month running total as reported in Q3 of £1,525m and got a year end net profit from that, of £1,975.5m.

Yet in the annual estimates (will post on those later - with short posts hopefully) they are showing the net profit as closing HIGHER at £1,983m as stated above. Only a small difference - but there should be no difference. I've checked the mean and the median and it still doesn't add up. Of course you must allow 2% or 3% forecast error, but the highest forecast was for a stonking £2,226m with the lowest (probably DB) coming in at £1,866m.

However, until proven wrong you have to (just have to!) refer to Jansen's statement of:

- "BT delivered results slightly below our expectations for the third quarter of the year,
BUT WE REMAIN ***ON TRACK*** TO MEET OUR OUTLOOK FOR THE FULL YEAR".

To me, that doesn't tie in with the brand new Q4 Consensus forecasts of a scabby Q4 of £450.5m just because Q3 was the poor cousin to Q1 & Q2

- My forecast is for an 'easy' minimum Q4 of £475m and thus £2bn for net profit, and probably won't be surprised if the first figure is even higher, and back to starting with a ' 5 ', so a net profit of £2bn+

(IMO, of course).

Or click this and scroll down to - LATEST CONSENSUS:

https://www.btplc.com/Sharesandperformance/Financialreportingandnews/index.htm

Click the link in my post. Just tested and it functions.

" . . . that all important physiological bottom line of £2bn net profit . . . "

Tsk! - psyCHological !!!!

(Part 2 of 2 Concludes. . . .)

. . . Q4 Consensus Net Profit forecast is for £450.5m

So Consensus is for BT not to achieve £2bn Net Profit on that low forecast
when added to £1525m 9 month Q3 running total.

However, ignoring the downbeat consensus forecasters, I am of the opinion £2bn Net Profit should, ("should") be achievable.
But that bare £2bn would entail a reduction in Net Profit for this year, when compared against the previous year.

The full year forecasts have the analysts forecasting BT down against the previous year on all headings, but will leave and review those and revenue & pre-tax profits forecasts until next week maybe. Post is long enough as is.

The question is:
When the market opens on Monday, how will it react to the low Q4 forecast which indicates no £2bn net profit for the full year? ( I differ in that forecast)
Already baked-in, or further decline in the SP?

My eyes are on the oversold indicators.
Can't be that many panic sellers left to sell . . . . . . . . . can there?
Surely not?

(Part 1 of 2 )

Bit late in posting. Think I've got a touch of Coronavirus. You might get manflu but I always get the real deal.
Tap-like constant Runny nose? - tick.
Non-stop coughing through the night, tickly cough? - tick.

- And I can't pronounce - "a train ticket to Dottingham please" - 'N'!
It's that bad, I can't even type it.

------------------

Q4 (initial) Consensus forecast. (Initial, because they will issue some half a dozen more between here and May):

BT has been nothing but a serial disappointer from early 2016 to currently. So if you're an analyst and without any blue skies in sight, are you likely to take a leap of faith - or treat BT as a permanent disappointer, until informed to the contrary, and produce forecasts that protect your reputation, and play for safety with a downbeat forecast?

I'm thinking the latter, based on what I'm seeing for Q4 here -

https://www.btplc.com/Sharesandperformance/Financialreportingandnews/Latestconsensus/Modules/Archive/Q42019-20/bt-group-consensus-140220.pdf

Here's the Consensus forecasts past performance for Net Profit totals that test, that assertion:

(I had posted of my expectations of an absolute minimum of £2bn for the full year to protect that all important physiological bottom line of £2bn net profit delineator). IT MUST NOT FALL!

Mean and median added and /2 to arrive at =

Q1 Consensus Net Profit forecast was for £420.5m
Q2 Consensus Net Profit forecast was for £486.0m
Q3 Consensus Net Profit forecast was for £457.0m

Before posting today's Q4 forecast, let's see how the Consensus forecasts compared to BT's subsequent actual results -

Q1 Consensus Net Profit forecast was for £420.5m . .
BT achieved £505m Net Profit!

Q2 Consensus Net Profit forecast was for £486.0m . .
BT achieved £563m Net Profit!

Q3 Consensus Net Profit forecast was for £457.0m . .
BT achieved £458m Net Profit.

With the exception of Q3, both Q1 & Q2 Consensus forecasts got nowhere near nor even forecast just a wee bit above the actual results. Consensus was woefully bearish. But with Q3 ACTUAL being the first time one quarter came in below the important £500m, you can see why, on threading that back up to pre tax net profit all were crying 'below expectations'.

However take the 9 month total away from the £2bn net profit minimum target and all that's required in Q4 as a minimum, is for BT to achieve £474m.
I think that should be achievable and thus - £2bn net profit!

Last year was £2,159m in net profit earnings, meaning £633m would be needed in Q4 to achieve it! Unlikely now?
I was even holding out for an increase based on TTM calcs of £2,175m!
Which would call for a Q4 result of £649m.

As Jansen said all will come good on the night, then that would have to be a Q4 of over £600m in net profit!!!

And so to the initial Q4 forecasts. What do they see for Q4? Here it is -

Q4 Consensus Net Profit forecast is for £450.5m

Continues > > >

Will be looking more closely at the initial Consensus Forecasts for Q4, later this morning.

The Cheeky buggers have dated them the 14th February, yesterday - as I was expecting in previous posts - but only published them this very morning with yesterday's date! What a cheek. Does that mean they were working very late to midnight, last night? LOL! Because there was nothing there when I checked last night.

Be prepared for me to change my tune when I've more time to do so - but on first glance I fully reject their net profit forecast and will post the more likely, truthful, forecast - mine! :) :)

Bare in mind in all 3 previous forecasts they underestimated considerably, and well, they just got it plain wrong - as a consensus GROUP.

These Q4's are atrociousyly low, and utterly unacceptable and out of step with reality. An article floated into my inbox last night interviewing analysts as a group and they admit that the general industry that analysts inhabit today is bearish in outlook and don't want to be caught out like they were in the dot.com bubble. They actually laugh and joke on who is the more bearish. Well they've surpassed themselves on this initial Q4.

All that Laters.....
If you can't wait, mosey on over there and have a looksee yourself before I return, hopefully that will be before mid day.

Fleccy -

I support the TTM calculation that forecasts VOD coming in with yet another Net Loss, this time of circa a £2.1b Net loss!

(BT to come in with that amount - but not as a loss - but as yet another Net Profit! :)

Here's the point of this post.

- Analysts estimates actually poo-hoo that £2.1b net loss and instead the estimates show to expect £1.972bn in Net profits!

Both report within a week of each other. Will I end up not daring to show my face on the VOD board should that loss be a profit, instead? :) :)

( I get nothing out of it if proven right; there's absolutely no pleasure in seeing distress come true, except by sociopaths etc., )

Vod has been good to me in years past.

In twice - and left each yime with a profit and several divis both times. Hence my maintained interest.

- Although selling was like being in an earthquake tusami movie with me running helter skelter for the exit both times with much reduced profits after hanging on too long. My only reasons for selling. Vod was cheating on me behind my back.

I'm still a Vodafone man through and through as regards it's products. Love 'em. But as a long term test of liquidity either Vod will have to increase debt further or do something as yet unknown. It's still not making any profit. Strange. Every media article slams BT's debt but not so much when they analyse Vod - or when they do - not with the same heavy cricket bat as they aim at BT :)

PS. Here's a credibility test on too much debt. Vodafdone's 3 liquidity metrics all fail. Red flags!

Yet Vod's Net gearing is virtually half of BT's - but still they're at the red flag level of 101.8% despite being lower (better) than BT's.

Net debt for the year at Vod could end as high as £59bn ! (In % terms a similar staggering increase as BT's).

Yet curiously, liquidity has gone to hell in a handcart at VOD. (They haven't at BT).
I also think VOD will turn in another net loss at the year end of circa £2.1bn net loss, making that a total 4 out of the last 5 years at VOD as producing a net loss.

All BT's same years are profit making.

- Yet no question the Market loves VOD more.

Liquidity? Which will be in the media first for potential defaulting on some of its creditors? Don't know. Just highlighting liquidity at VOD is worse than BT's clear and positive, liquidity.

A test for the little algo ratio metrics then. They like BT. But they have a face like they're sucking lemons over at VOD.

Wanted to do a second post - a cynical, polar view, on the Motley article posted below (thanks for highlighting bertram) as some of the data adds weight to my belief that the market reaction to Q3 was a coarse, over reaction (soon to be corrected in my view) but may not find the time tonight, to air that opinion.

And if the initial Q4 does get published tomorrow, my attention may not return to this topic again; but I will use the data in that media piece to drive home a personal view in any Q4 forecasts.

I'm out, busy tomorrow, so won't be able to post on the awaited Q4 forecasts until evening, should it appear during the day.

(Concludes: Part 2 of 2) . . .

On the stock market, companies have a handy gearing metric developed just for them. Up to 50% gearing is reputed to be 'safe' and able to withstand any potential "bumps in the road" that were unforeseen at the outset. But it's a rule of thumb that any company sporting a 100% gearing debt ratio is said to liable for all sorts of trouble should one of those unforeseen bumps in the road strike the economy or the company.

BT's currently is at 190.6% !

- So that's a concern. Hence Jansen was like a blue-rrsd fly, all over the world in 2019 selling everything unneeded that he could lay his hands on, to reduce debt and yet net debt, is still on course for £18/£19bn by year end.

It doesn't mean if BT was the man with the mortgage that he is in trouble (or BT)
- rather, that he and any company at 100% or higher gearing, need to be seriously aware that things must not get worse than they are, at that extreme high level of debt gearing.

2) The high net debt is for spending on things like the full fibre infrastructure (not sure how pension topping-up annual payments to attack the pension deficit, are shown)
- so posts like NDNIC00 below (and Fleccy's) highlight the potential for attracting larger B2B revenue into BT when all completed.

Net debt and net profit are wholly dependent on getting the revenue right in the future. Revenue is the poor cousin here, but it's the key driver to getting reductions in debt and increases in net profit.

So I guess the question is, do you think the large net debt will bring increased revenue eventually in the future, or do you think that's just being speculative? Which side of that dining table do you sit at?

3) & 4)
With all that debt: what about liquidity?

Again there are (3) key metrics to measure a company's ability to maintain and meet all obligations and also repay regular day to day bills. Fail these 3 metrics and its clear suppliers are not getting paid and it would start seeping into the media. Insolvency looms when you can't pay your creditors.

BT's are exemplary (net profit anyone? :) That metric that all the analysts ignore and instead home-in on pre-tax profits being down?) No not that one, though I throw that in, anyway.

The 3 liquidity metrics are:

The Current Ratio = 1.04
The Quick Ratio (Also known as The Acid Test by old timers) = 1.01
The Interest Cover = 4.85

-----
Current Ratio needs to be above 1.0 for all short term debts - (1.04 here)
Quick Ratio needs to be above 1.0 - (1.01 here)
Interest Cover needs to be above 2.5 - (4.85 here)

BT scores a clear 3 out of 3. Ergo: BT is very liquid.
Window cleaners need have no fear of going unpaid at BT HQ offices.

Double ergo (is that a phrase?)

Okay, Summary then:

DESPITE BT's HUGE NET DEBT, IT IS NOT IMPACTING ON ITS LIQUIDITY.

- BT CAN, and is, PAYING ITS WAY.

( Page 1 of 2)

Avro's debt mountain question below somewhere:

Avro @ "Velo, or anyone else. How big of a problem is BT's debt . . . etc., "

I guess you mentioned me by name there, as I've posted previously that I get all my accountancy figures by paid-for subscription service (couple of hundred per year) as financial fundamentals are littered with duplicate sounding entries which drive me up the wall.

(That last sentence was more targeted at my next post [if time tonight] on the laughable "adjusted cash profits" eh? Wot?!!
- Cash profits of almost £6bn at the 9 month Q3 trading update???
Pure nonsense and of no use to the private investor).

I know why you're really trying to get the low down on debt Avro - to announce Armageddon on BT - right? :)

1) So, let's look at NET debt, then how much of that is borrowed - too much? Or manageable? (Leverage aka gearing)

2) With such a huge debt, what is BT getting in return?

3) And what effect does it have on the overall liquidity of the company?

4) And does it mean day to day ordinary bills are put under strain of repayment ? ie., Liquidity again .

The Q3 trading update revealed that currently the net debt has ballooned to circa £18.3bn. I'm looking at it probably closing the year closer to £19.6bn - so effectively there's another £1bn caught up in the works to thread through by the end of March, in readiness for publication in May.

--------------
So, 1)
How does that sit when compared historically over the years, leading up to currently? Take a look -

Net Debt for Y/Ending -

2014: . £7,345m
2015: . £5,811m
2016: £10,847m
2017: £10,665m
2018: £10,725m
2019: £11,996m

(At Q3 the interim 9 month period for the current year showing a massive increase to
£18,234m !)

- But on a TTM calculating basis I'm seeing possibly a final figure by year end for:

2020: £19,600m (est.)

(So by year end circa +/- £19bn - a massive jump over historical Net debt).

Is it manageable in the meantime? Rather than everyone offer their opinion, I look at trusted metrics used to judge companies equally. And for this it's gearing (leverage).

It's like looking at a mortgage. If a man on say £40k per annum buys a £300k house it probably equates to him having a net income close to £30k per year say £2.5k net income per month, every month - as long as he's employed. (Tax relief would be received but I'm using gross guesstimating)

The mortgage say, will be due monthly at say circa £1.2k per month, (or £1.4K-ish) leaving the householder with £1.3k-ish to live on each month. So could it be said he can afford to cloth and feed himself, and meet the monthly repayments (he's liquid) but should the mortgage foreclose on him suddenly then he's so leveraged (100 times his net salary) or if he lost his job, he'd be so over leveraged he couldn't possibly meet the monthly repayments, so would have to sell up and move out.

(Continues > > > )