James Gard: Making another appearance as stock of the week is BT. It’s rare that annual results make waves beyond the financial press, but BT’s decision to cut up to 40% of its workforce replace jobs with AI has caused a real stir. Especially as Vodafone had essentially softened up the market with 11,000 job cuts a few days earlier.
Clearly these are very difficult times in telecoms and mergers and consolidation are in motion. BT's share price fell on Thursday as investors looked beyond the bad news for workers and focused on the mixed financial numbers. Revenue was flat year-on-year but pre-tax profits were below the year before ("adjusted" and "pro forma" numbers were more flattering of course). What troubled the market was a rise in debt and fall in cash flow.
Now; cost-cutting is usually well received by the City but the scale of the restructuring needed came as shock. The BT turnaround story has been a long time in the making with multiple rounds of cost-cutting and there have been some false dawns. Regulators are always breathing down the company’s neck too.
Competition is everywhere, from sport TV to mobile and broadband. So it’s relatively easy to build a bear case for BT but Fibre and 5G rollout is an important part of improving digital connectivity, which are positive trends for the national infrastructure. Morningstar analysts says that BT’s Openreach division gives it a competitive advantage – no one else is going to muscle into this market and BT, for better or worse, is the "incumbent". "BT should be able to remain one of the leading consumer communication providers in the UK due to high brand awareness and a good-quality mobile network," says [Morningstar technology and communications analyst] Javier Correonero.
Even after a 25% bounce this year, shares are at levels seen in the mid 1980s after privatisation; around £1.40 – our analysts say they’re worth £2.30.
For Morningstar, I’m James Gard.
