Member Info for Velo

Wanted to do a full up to date review of all BT’s current key fundamentals days before the Q2 reveal tomorrow, then on to probable expectations of Q2 actuals v analysts guidance just for the fun of it all, but hey, you go with the hand you’re dealt with as regards allotted time. So bin that idea, and some others. The ‘new black’ tomorrow will set the scene.

(Short version – Looking for (or just under) £11.5b for revenue
and “desire” £1b for net profit but analysts say more likely £1.9b+odd).

Longer version -
Noticed a couple of consensus updates since I last posted here. Was hoping someone would chew them over for the benefit of all, as barely glanced at them myself.

The difference between the odd analyst new forecast occasionally posted on forums, and the sum total of them all, is that the former doesn’t tell you what all the others are forecasting as an average, as having access to ALL the analysts forecasts IS akin to the potential consensus of the market, (but not their SP forecasts).

So the key thing is: are those consensus forecasts increasing for Q2 or decreasing?
(In short, not much difference to those previous).

Okay, so actual performance beating forecasts almost always is party time for the SP.
Coming in inline, is usually a continuation of the SP’s progress.
And failing to meet the guidance forecasts is usually punishment time.

But overall is the consensus up - in pro rata totals over previous forecasts or not? That’s more important in BT’s case.

So what is the consensus? Fortunately BT’s own website has collected them all in one place. Something almost unheard of in any other stock. Kudos to BT for that.

The latest, dated 25th Oct shows they forecast revenue to be uninspiring at £5.7b for the Q2 quarter itself and modestly just under £11.5b for the half year. Which is a continuation of the recent years of decline in revenue since 2017. But - but! - that would be the smallest decline so far, if tomorrow comes in at £11.5b for revenue.

Net profit has actually increased Y-O-Y since 2017 so a decrease would put a pall on events. But not so much IMO if they can come in with a nice fat, rotund, £1b in net profit (ie., leading to £2b for the full year?)

That latest forecast shows the Q2 quarter itself as between £474m and £498m thus intimating that the full 6 months net profit will come in at £1.9b+ something-odd.
Net profit has been a little above £2b since 2017 and well over £2b for years prior to that year, too.

So it’s likely, according to half year forecasts for earnings, to come in just a tiny fraction below £1b but I hold the view that £1b is entirely possible and thus provide a much needed ‘beat’ over and above analysts forecasts.

In summary, not sweating it over revenue, but I would much prefer to see a £1b net profit for the full 6 months to seal-the-deal for a nice reaction by the market, despite analysts forecasts suggesting very close to that of £1.9b+ something-ish.

Thanks for the reminder BB.
- Yes, Wed 9th October.

" while brand power is fading.... "

Eh? What? Not my perception in any way shape or form. If anything IMO it's increasing!

Do you mean In your opinion only? Otherwise please supply facts and supporting data to offer some validity to your view. Are you referring to recent years falling revenue and a couple of years or so of losses? (Analysts have the current year and also the next as showing an increase year on yea, for both revenue and net profit).

I've seen that octopus that accurately predicted world Cup football outcomes until it grew old and died. Looks like that cat has an opinion. Ask it what next for the SP? Ask it to meow once for yes and meow twice for no. Whatever it meows just wait a mo moment until I get my broker's site up and open. Okay, ready go ahead - ask the cat - What's it predicting? I'm all ears.

Yes, you have to be very careful when shirting a stock. If the share price lifts instead, then you have your shirt lifted. And having your shirt lifted against your position will burn and hurt you in more ways than you were expected :)

Thanks for the clarification, ragnarlothrok.

ragnarlothbrok - Do you have any specific data available on that declining liquidity?

The placing is an obvious call for more cash, and the fact that I can no longer obtain any figures for Price to Free Cash Flow another.

Cash is £7.86m (although I have a generic preference for a minimum of £10m). No net debt, in fact the opposite - a surplus.

Net Gearing is excellent and shows nil leverage.

Appropriate ratios show an ability to meet all debt payments. So I'm struggling to find/ see where and how the liquidity has dried up. I suppose it's all in that currently incalculable FCF somewhere?

Hi TruroTrader, Yes not a bad price topping up @ 108p. As you say, 5 years of growth, but the most notable growth is yet to come.

Last years revenue was £26.1m
- but this years is forecast to come in at £32.6m
and the year after is forecast to come in @ £45.1m!

And after years of losses due to establishing growth, it's now profit all the way with last year's net profit at £2.62m (only a tidily £0.45m in the year prior) to now be followed with net profit forecast of £10.9m for this year! A big jump.
And £14m showing as forecast for the year after.
The year before last, revenue achieved was £15.5m - yet for year 2020 the forecast net profit is almost the same as that revenue achieved in 2017! Some going eh?

The placing to raise cash has at the moment just thrown the SP of balance, so curious to see whether it begins recovery next week or dives down further.

It's actually technically oversold at the moment, but only gently so - in the past EQLS oversold conditions have been monster occasions. Last biggie was at the start of this year circa Jan/Feb - and look at the recovery once it came out of that oversold condition.

This is a baby one. So might not retrace much further; if that's all it's up for.

No telling with the effect the placing has had on the SP by diluting the share pool. It is an over reaction to the placing but they always do that for awhile in my experience.

. . . . .Busy from Sunday for fortnight, so I will be watching-only for afar.

" Meantime, any thoughts on what’s driven the rise this week?"

- Yes, but haven't ben able to post until this evening. An observation in a previous post or two comes to mind.

Copy pasted a bit of it to save typing - 27th Aug this one, in a reply to Longish comes to mind, but gives the jist of it -
---------------

". . . because this current SP oversold condition is/may be nearing maturity IMO, coupled with the ending of XD period on Sept 9th divi payment day, and I could believe in a natural (here we go again :) "mini rally".

Not a full recovery, but a pleasant temporary lift out of oversold condition. I counted approx 12 o/sold conditions of note since Jan 2016 - and all ended with a pleasant temporary rise in the SP when exiting o/sold.

As they've all 100% behaved like that, it's unlikely that this one will behave any differently IMO; although it might be anything of as low as only 5/10p to much more than that, maybe maximum of 3 or 4 times that amount (historically speaking) "
--------------

I distinctly remember a post prior to that saying similar. The day after that similar post the SP rose a little and came straight out of oversold. Not what I was wanting so soon. Next day it fell back into over rsold and continued falling deeper, I let it get to looking bigger and maturing as some of BT's can last a fortnight to a month or so before posting that copy/paste above.

Been busy as was dying to post the SP had risen out of oversold on Wed - but only just by end of day so relaxed a bit, but on Thursday it cleared completely and is well and truly out of oversold condition - couldn't get the time to post as was dying to get to a keyboard. Then Friday aced it and confirmed it.
That's it - the sellers are "exhausted" (for now). SP is now in the normal relative strength area.

So that's the lower end of the intial rocket launch achieved by tonight:
the " ...as low as only 5/10p..."

(The 5p bit). Wanted it to remain oversold until a little closer to divi payment day for better effect, but beggars can't be choosers. Don't see a poor performance right up to divi payment day. Certainly hope the second part ie., 10p comes to fruition that would be heading for 170p. (Investors want at least their 184p back that was showing the night before XD day). I should think coming out of XD period on conclusion of ther divi payment bodes well with this ending of the oversold condition.

A wee warning on the other part:
"maybe maximum of 3 or 4 times that amount (historically speaking) "

On several of those occasions, the SP eventually, over several days/weeks, went on straight up into Overbought condition with inevitable consequences.

I have 2 opposing thoughts on this lift out of oversold
1) Yes it will be pleasant but. . .
2) There's still the long term trend to deal with. One swallow and all that.
So hang loose and don't become over bullish should the SP have a crack at beyond 170p

Busy from Sunday for fortnight, so I

Yes, excellent link to LSExchg Fleccy.

Just checked IMB on that link and yes it shows the divi cover for IMB not covered at all, at only 0.76

Check here on LSEast and they display 1.45 - misleading the unwary.

PS For my sins I hold IMB too.

(Concludes) > > > >

Found with sites such as on here, you sometimes get misleading data, so as none come with a bigger reputation than the LSExchange, I've linked to it.

For instance this very site shows IMB as having a well covered divi when I know for an unarguable fact it isn't/wasn't covered at all - it uses up all the net profit and then some. Turns out this site is showing the FCF cover instead, and not the cover derived from earnings!! Simply unforgiveable.

As IMB has magnificent FCF to cover any shortfall in dividends it erroneously looks well covered - but is 100% misleading.

And that's exactly what happened about a month or so ago when IMB announced it was ceasing the policy of guaranteed yearly divi increases and now calling their policy 'progressive' only, with no more guaranteed annual automatic increases, but reassured investors the current divi payout would carry on as they are. (They need the FCF money for other developments). All sounds a very familiar scenario for the future, but I couldn't possibly comment any further LOL!

Fleccy @ "Velo, thanks for your excellent Altman analysis and explanation".

Thank you Fleccy, you're welcome.

Truth be told it's not a ratio that I refer to that much. I have to fall over it to notice it, like I did earlier in the week, when I noticed BATS is in the distressed zone and the 2 year warning applies. I was checking up for an acquaintance and confidently expected it be one of those that falls into the small percentage that although selected by the Altman ratio as 'distressed' never actually succumbs because it's passed the 2 year warning safely - but turns out it's been in the distress zone for only a year. Double trouble because I have a holding in it too! Been ignoring it due to it costing me, as SP-wise it's a stinker, but great divi-wise.

Should add, BT has never been in the serious distress zone ever, so really the lesser 'caution should be taken' rating is still in force. A stock has to be at death's door rating of 'distress' and sail past 2 years whilst holding that rating, before one can breath out and say: oh it's one of the small percentage that escape the ultimate fate; as VOD has shown with it's minus rating, yet is still standing.

Big kudos to you for compiling that Z1 ratio manually. Well done! Your subsequent corrective adds, to your initial post were exactly what I was afraid would happen to me if I attempted it manually that way; selecting the incorrect balance sheet metric for entry - and I'd need hours - and not the speed you indicated in compiling it.

Also thanks for that LSExchange link. Known that site for years, but the pages you landed on have alluded me. So added to my browser links as it's handy for historic ratios; as mine are mostly 'forward'.

Incidentally, did you notice the net gearing entry right at the bottom showing 149.6% leverage? (Which is bad) bares to compare as the 118% "forward" net gearing stated in my posts whilst still "risky" show that since the year end Match 31st, Jansen must be doing something right - as he's reduced that 145% net gearing from March 31st - down to today, by just under a fifth. Still a risky rating, but that's the way to go, at least in the right direction - improving!

Found with sites such as on here, you sometimes get misleading data, so as none come with a bigger reputation than the LSExchange, I've linked to it.

For instance here on LSE, this very site, shows IMB as having a well covered divi when I know for an unarguable fact it isn't/wasn't covered at all - it uses up all of the net profit and then some. Turns out this site is showing the FCF divi cover instead, and not the cover derived from earnings!! Simply unforgiveable.

Continues > > >

Finally, figures the algo's deliver on using the Z2 Altman Bankruptcy Z-score. (No effort or input req by me).

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

Are liquid assets a significant proportion of the assets?

Details:
Ordinarily, a firm experiencing consistent operating losses will have shrinking current assets in relation to total assets. Altman found this to the most helpful liquidity ratio (the current and quick ratio were subject to contradictory trends amongst failing firms). This is however the least significant of the five factors.

Testing: Working Capital/Total Assets > 0.2375

BT Details: Working Capital/Total Assets = 0.018

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

Do reinvested earnings make up a significant portion of the assets?

Details:
This measures cumulative profitability over time as a proportion of total assets. This discriminates against younger firms (c. 50% of all failings companies do so in their first five years of existence). In addition, this measures the leverage of a firm (high scoring firms have financed their assets through retention of profits, rather than debt). Note: the Retained Earnings figure used includes all shareholder reserves. Altman notes that these are subject to "manipulation" via corporate quasi-reorganizations, so this could require further adjustment.

Testing: Retained Earnings/Total Assets > -0.1355

BT Details: Retained Earnings/Total Assets = 0.17

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

Are the assets relatively productive in terms of earnings?

Details:
This is the most significant factor in the Altman score. It measures the true productivity of the firm’s assets, independent of any tax or leverage factors.Since a firm’s ultimate existence is based on the earning power of its assets, Altman found that this measures continually outperforms other profitability measures in assessing the risk of corporate failure, including cash flow.

Testing: Earnings Before Interest and Taxes/Total Assets > -0.082

BT Details: Earnings Before Interest and Taxes/Total Assets = 0.071

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

Does firm value compare favourably to its liabilities?

Details:
This measures the extent to which the firm’s assets can decline in value (measured by market value of equity) before the liabilities exceed the assets and the firm becomes insolvent.

Testing: Market Value of Equity/Book Value of Total Liabilities > 1.439

BT Details: Market Value of Equity/Book Value of Total Liabilities = 0.44

And that's it - I'm done! G'night! Zzzzzzzzzzzzzzzzzzz

(Finally concludes) >>>>

I had never noticed BT's rating being any worse than the grey "caution".
So I used the same back testing for BT as I did for VOD and the Z-score was never worse than the grey zone all the way back to 2013!
(P/E 13 back then,
SP of £3.50
and divi yield was 3.2%
with Z-score still no further than the grey "caution").

BT and VOD have suffered in part of that period so the Z-Score does smell blood from companies going through a sticky patch, but in BT's case it's only every reached "caution should be taken" and it's been saying that a helluva lot longer than the deaded 2 years warning too! So it's oputstayed it's own welcome, and therefore BT to, is a 20% to 10% escapee.

So if Fleecy wants to say highly unlikely to go bankrupt - there's no credible data to oppose that belief.

And I hereby withdraw my objection to the word "highly" :)

(Part 2 ) >>>>>>

By way of comparison look at VOD -

For VOD it says: Tests have shown that the Distress Zone is 80-90% accurate in predicting bankruptcy.

Vodafone has an Altman Z2 of -1.47 indicating a serious risk of financial distress within the next 2 years.

That's terrifying! It has VOD in the red distress zone.

This metric has a fearsome reputation for always getting it's man - it got Carillion pegged from the off. Enron - the lot. Unfortunately it also has a reputation of collateral damage in that once it enters a village in the hunt for the Viet Cong it machine guns innocent villagers (innocent companies) in collateral just to get the villains.

So they introduced the 80-90% accuracy warning - tested and proved by many an agency.

And with those two pieces of information I discovered that VOD and BT were innocent villagers caught up in the crossfire. Here's how. (Dead simple as it turns out).

First 20% to 10% of stocks chosen, never succumb to bankruptcy. Fact. All the rest go down the pan.

Secondly bankruptcy usually occurs within 2 years of Altman's Z-Score looking at you.

So no I went back 2 years on VOD's history and discovered it was in the distress zone - time was up.

Nervously I checked back 3 years - same reading - you're dead in 2 years mate! What?

Then I went back 4 years and it was still threatening VOD with death and destruction. Eh?

In all, I went back 8 years and there was Altman's Z-Score bullying the life out of VOD.

I had my evidence. 2 years had come and gone and VOD was still the last man standing! Ergo: VOD MUST be one of the 20% to 10% escapees!!!!

So I posted a v small quick clearance on VOD forum (and here on BT's as it happens).

Saw an American poster on another site (ii) shouting the death threat odds about VOD's imminent demise because of the Z-Score.
I declined to engage as it would entail signing up etc.,

(By the way don't confuse with the lovely F-Score, my all time fave!)

That was VOD. Armed with that, I used the same methodology to check up on BT.
Here's what I discovered . . .

(Continues >>>>>

- but Fleccy put a lot of effort into the Altman Z score metric tonight and I salute him. Afterwards, will post a boring disclosure of the findings I have so Fleccy can if he wishes compare to his own workings.

Probably run to 3 or 4 pages - So be warned:
--------------------------------------

The Altman Bankruptcy Z-score.

This fundamentals-based bankruptcy metric was devised by a professor of finance in the 1960's with a caveat not to use it for finance stocks. (Is that because they don't have stock, ie., products? So if Teleco co's sell a service that's then productless also, like a finance company???)

But by the end of the millennium due to demand, Prof Altman came up with an improved version to cater for finance stocks and called it Z-Score 2 (It still doesn't work on finance stocks).

I have access to the original Z (1) and the latest Z2- Score version. Ran both on a filter screen asking how many stocks in the UK had a score higher than that initial 4.09 down below - to my surprise there were loads. Obviously I've been hanging around deep value stocks so long, that's why I've never gotten to see much above 2.0 or 3.0 (1.8 is the all-clear border crossing reading)

Here's what the instructions say, and in particular what the result says about BT:

" The Bankruptcy Risk Meter gives a visual representation of how likely a company is to head into serious financial difficulty within the next two years.
The meter is derived from the Altman Z-Score, a statistical bankruptcy indicator generated from a set of balance sheet ratios. If the meter is in the safe zone (*indicating a Z-Score greater than 3*) the financial health of the company is good, whereas a company is in serious trouble if the meter is in the distress zone (*indicating a Z-Score less than 1.8*).
Tests have shown that the Distress Zone is 80-90% accurate in predicting bankruptcy within 2 years.

Now that's Z1 the old original.

Here's the Z2 about BT's results:
BT has an Altman Z2 of 1.63 indicating the company is not entirely safe from financial distress, caution should be taken.

It has BT in the grey zone which is "caution" and not the terrible "Distress zone" and sports the less worrisome "caution should be taken".
Now look what it says currently for BT - for the past 6 years (and there's the first clue to an error right there (6 years!) Refer back to that 2 years warning above)
======
By way of comparison look at VOD -

For VOD it says: Tests have shown that the Distress Zone is 80-90% accurate in predicting bankruptcy.
Vodafone has an Altman Z2 score of -1.47 indicating a serious risk of financial distress within the next 2 years.

That's terrifying! It has VOD in the red distress zone.

This metric has a fearsome reputation for always getting it's man - it got Carillion pegged from the off. Enron - the lot. Sent them all in real life to Davey Jones Locker!

Unfortunately it also has a reputation of (CONTINES >>>>>>>

Fleccy, what did I say in previous weeks /months about this stuff making your eyes bleed? I begged you not to go there but No, you had to open Pandora's box after all the warnings not to :) :) :)

You're calcs are certainly making mine bleed. Well done for having a go. Kudo's to you for unravelling a fieresome metric.

Lazybones me? I take to the backseat with a cuppa and with a single click just let the algo's do it.

I find 1.1 & 1.2 a bit harsh on BT Fleccy, that's punishing BT now.

Thought you were going to say circa 2.0 or thereabouts (1.8 is the home run for a clean bill of health) and thus improve on my algos spitting out in the 'grey area' of 1.63

Off for a cuppa Fleccy - but will get back to Altman before the night is out.