For the six months ended 30 September, the FTSE 100 telecoms group reported a pre-tax profit of £1.3mln, the same as the prior year, while revenues fell 1% to £11.4mln as a result of legacy products and a reduction in low margin business.
The interim dividend, which has been subject to extra shareholder angst since chairman Jan du Plessis said in the summer that a reduction may be considered in future, was held steady at 4.62p per share.
Looking ahead, BT’s chief executive Philip Jansen said the firm was “on track” to meet its full-year outlook and that the performance so far this year had been in line with expectations.
He added that the group had accelerated the rollout of its 5G and fibre internet products and was in talks with the government and regulators to “stimulate further investment in full fibre [internet]”.
Jensen also said the group would “continue to make progress” with its modernisation agenda, which is targeting over £1.1bn in annualised cost savings.
In early October, BT sold off its fleet management business to European investor Aurelius Group as part of its cost-cutting efforts, though net debt has ballooned to more than £18bn.
The results were largely in line with analysts expectations and the dividend news seemed a tonic for the shares, which continued to rise as the day wore on, up 2% to 206p by early afternoon.
Investment versus dividend
However, while the dividend has been maintained in line with last year, Neil Wilson at Markets.com said the cost of investment in 5G and fibre is “crippling”, despite the cutbacks and cost savings,.
He said Jansen has “not been bold enough and missed his chance to reset the bar early by scrapping the dividend” when he joined earlier this year.
“In July management said they may in the future cut the dividend, but you have to feel that now is the time to do it. Other companies that need to plough money into capex have done so. BT should follow suit.”
BT’s dividend yield of 7.4% puts it among the ten highest-yielding stocks in the FTSE 100 and Russ Mould, investment director at AJ Bell, noted that its earnings cover is “thinner than ideal” at 1.61 times, not offering the most protection for any unexpected developments, while cash flow cover comes to around £1.5bn a year.
Mould said it was “good news” that investment in the business is expected to be roughly unchanged this year, though forecast normalised cash flow as BT defines it will fall by almost a fifth in the year to next March.
“That will leave BT investors on edge about the dividend, even if for the moment there is sufficient cash flow to cover the dividend once all key expenses, such as tax, interest on debt and capital investment are met,” he said.
“Maintaining the dividend would therefore be a huge step toward perhaps persuading investors that BT could be a cheap stock.
“At 204p the shares trade on a forward price/earnings ratio of barely eight times and come with a plump yield and the company does feel unloved – its shares trade no higher now than they did in December 1989, although that may be a clue as to just how big a job Mr Jansen has on his hands if he is to revive the company’s profit momentum and share price on a sustainable basis.”