Stockbroker tips BT as a ‘BUY’

7th June 2013

UK stockbroker The Share Centre is tipping BT has a ‘buy’ following some strong results from the fixed-line telecommunications giant writes Philip Scott.

In May the FTSE 100 listed group announced to the market that for the year ended 31 March, pre-tax profits rose 2% to £2.5bn, even though revenues endured a 5% fall £18bn. The telecommunications industry as a whole saw revenues fall 0.2% last year to £72.2bn in 2012, compared to revenue growth of 1.3% in 2011. But despite squeezed sales, net profits of the fixed line communications sector saw healthy growth of 23.4% in 2012.

Sheridan Admans, investment research manager at The Share Centre, says: “BT offers investors an attractive yield and expects to grow dividends by 10-15% per annum over the next three years.

“We are upgrading our recommendation for investors to a ‘buy’ as the forward P/E looks undemanding and BT could be in sight of achieving its gross revenue target, having demonstrated it can expand and invest for future growth without being a headwind to cash flow expansion.

“Recent results have been very strong with operating efficiencies supporting earnings, debt down significantly, increased cash flow and earnings up considerably despite revenue growth being flat.

A rise in demand for its high speed broadband and television services has helped boost figures and Admans expects investors will be pleased to hear the roll out of its new sports channels and the recently added 60,000 subscribers for its video-on-demand service could start to see the company take market share from other subscription providers.

“The impact of the Eurozone crisis has been a drag on its global services operation, which accounts for about 40% of its revenue. However, the company saw a solid rise in new orders for the division and revenue is expected to improve in the second half of the year, which should provide some relief.”

BT’s share price has jumped by more than 52% over the past 12 months, 33% was achieved in the past six months alone. Its shares are trading at 312.4p, as at June 7, during intraday trading.

32 thoughts on “Stockbroker tips BT as a ‘BUY’”

  1. therrawbuzzin says:

    As far as I’m concerned, forward guidance hasn’t been discredited;
    if you tell people what your future concerns are, and the future perameters for change of policy, it might well be very helpful.
    If, however, you lie about the driving perameters, then get caught lying, obviously, there are problems of credibility.
    The problem is the guide, not the idea of guidance.

    1. Anonymous says:

      Hi therrawbuzzin

      When things are so volatile and subject to change do you not think that Forward Guidance makes the Bank of England a hostage to fortune? After all it has had a shocking forecasting record which came home to haunt it as the unemployment rate rushed through the 7% unemployment rate indication a long way before it was supposed to.

      1. therrawbuzzin says:

        I understand your point, but if Carnage had been honest and said that interest rates would remain low until the banks had restuffed their balance sheets, and could afford some loans to go belly-up, or had said, things are too volatile to assess where we’ll be in six months, but here’s our main aims…
        In both instances, forward guidance is fine.
        I still think that Carney’s only problem was seeking a politically acceptable perameter for interest rate rises, instead of the truth, and that is damning, as it makes him an unaccountable politician.
        “Hostage to fortune?” Do you mean economics isn’t a science?

  2. Anonymous says:

    What would change with elected politicians in charge ?

    I’d hope to see a reduction in the BOE wages bill. I’d hope they employ economists who weren’t incredibly well connected to Goldman Sachs.

    We would have a single chancellor with whom the buck stops – the person responsible for both setting interest rates and for balancing the budget. These things don’t act in isolation.

    I’d comment that the politicians are responsible QE and other market manipulation. Printing money and manipulating markets are rightly considered crimes when anybody else does it, why should our elected politicians have immunity ?

    1. therrawbuzzin says:

      The supposed ethos behind the depoliticisation of monetary policy was to prevent chancellors from meddling for political gain!!!!!
      Now we have bankers setting monetary policy for banking sector, politicians feign unaccountability, and monetary policy is removed from the democratic process.

  3. Anonymous says:

    Great column, Shaun. I notice that Mr. Fisher pooh-poohed the idea that interest rates should have been higher in the UK before the financial crisis. A lot of monetary economists would disagree with him on that. British-born David Laidler, probably Canada’s best-known monetary economist, co-authored a 2008 paper in which he says (p. 8-9): “Not surprisingly, the UK retail price index (RPI), which does account for owner-occupancy costs and is roughly equivalent to the Canadian CPI, has risen significantly faster in recent years [than the UK CPI]…Had the Bank of England been targeting this index _ or even the variant that it targeted before 2003, which ignores mortgage interest while accounting for other owner-occupancy costs _ it is hard to believe that UK monetary policy would not have tightened sooner, with salutary effects not just on inflation, but on the local housing market, too.”

    http://www.cdhowe.org/unstable-foundations-asset-markets-inflation-targets-and-canadas-2011-policy-choices/4663

    It is a mystery why the authors would think that RPI would be a better inflation target indicator than RPIX, but the rest of their analysis is quite sound. Andrew Baldwin

    1. Anonymous says:

      Hi Andrew

      Thanks for the link and the reminder of David Laidler who wrote one of the textbooks I studied back in my days as a student at the LSE. As too the analysis I agree that ether variant of the RPI would have been a preferable inflation target in the boom that preceded the credit crunch. The MPC should have objected to the 2003 target change.

      There was something else in Dr.Fisher’s analysis which was somewhat odd. He told us this.

      “That had given us an overvalued exchange rate.” which led to this “That was pushing up the exchange rate giving us a big current account deficit.” Except after the 20-25% devaluation the UK was left with a big current account deficit. So it was a shame that he was not challenged on this point.

  4. Forbin says:

    Hello Shaun,

    “Some might consider that the Bank of England is flying blind right now…..”

    some of us think they’ve always been flying blind !

    With bogus made up figures for GDP GNP, CPI , etc, etc its no wonder they are like a stopped watch – right about twice a day !

    The obvious solution is to either make the Governor an electable position ( like you would like – and I’d vote for you 😉 )

    or

    bring the job back to the Chancellor – wasn’t my mate GB who though up this stupid idea in the first t place?

    honestly I can’t see either happening as its just too cozy for Banks and pollies .

    Forbin,

    1. Anonymous says:

      Hi Forbin

      I agree that the MPC has become institutionalised. In fact our establishment like it so much that they have created the FPC for our banks and financial sector. So if things get difficult they now have two unelected Quango’s to deflect the flack and take the blame. It has become the modern method of government.

    2. Eric says:

      Hi Guys, I wouldn’t trust them to fly anything. The MPC’s performance over the last 5 years brings Alice to mind – lost deep in the woods and wondering which path to take.

  5. Ianjones says:

    Surely the main reason interest rates went so low was because debt exceeded the income available to pay it off plus the interest. By bringing in the FLS, all they’ve done is raise long term debt on short term rates using the Govt balance sheet to fund it. As Govt debt is also still growing very quickly it is obvious that the Bank will be forced to keep rates low and printing money regardless of the inflation rate. They’ve lost control.

    1. Anonymous says:

      Hi Ian

      I have thought for a while that central bankers were trapping themselves into a situation which required ever lower interest-rates. None of the major central banks has broken that cycle yet….

  6. Noo 2 Economics says:

    Hi Shaun,

    “If we returned to elected politicians being in charge of monetary policy right now, what do you think would change if anything?”

    If you consider the answer to that question to be “nothing” then doesn’t that negate your calls for democratically elected BOE officials?

    On a more rambling set of gripes:

    “there was little indication of inflationary pressures building”. Hrrrmph! My model already shows inflationary pressure building, resulting in 2.5% -3% CPI by year end. The only thing now that can derail my prediction is an ever strengthening GBP.

    “Moreover, there were early signs that global growth was weakening,” Yes there were signs that I saw in November/December last year!! My model now shows global
    growth either flat lining or marginally strengthening from September onwards but certainly not weakening!!

    “uncertainty about the degree of slack had risen on the month”. I have no uncertainty at all – there isn’t any, but wages are held low because jobs are quickly outsourced overseas if workers in England won’t accept low pay. Of course this does not apply to high skill jobs where I expect wage levels to continue increasing as there is a distinct shortage of skilled labour in the UK.

    Shaun, are you sure these aren’t the minutes from the early part of this year? If not how do they keep their jobs?

    1. Anonymous says:

      Hi Noo2

      I do not think so as elected Bank of England officials would stand on a specific platform rather than the general one of MPs currently. There would be an opportunity for dissenters to stand and present different arguments.

      As to your view on wage pressure I spoke to someone who works in recruitment in the construction industry earlier and he agrees with your version of what is happening to wages.

      I am afraid that they are the minutes from July 2014….

  7. Anonymous says:

    Great column, Shaun. Italy’s trade with Russia was already
    hit after international sanctions imposed following the Crimean incursion, as described in this link.

    http://www.ansa.it/english/news/2014/05/16/international-sanctions-weigh-heavily-on-italy-russia-trade_4169f5c4-a2a3-4603-a6df-d0cc81406e48.html

    I haven’t seen any numbers on it, but now it will take
    another hit with the Russian Federation imposing a full ban on fruit and
    vegetables from the European Union. It’s hard to imagine that what has now
    become a full-scale trade war involving the European Economic Area, the
    Eurasian Union, and North America started over an obscure trade agreement that was supposed to boost trade between the EU and Ukraine.

    You write about how a weakened Italy was in a poor position to support its neighbours in the EU as it had been asked to do. Now it seems likely to be called on to pay its share of the tab to support Ukraine as well. People talked about how living conditions might deteriorate as
    winter approached with a Russian natural gas ban in effect. We haven’t even had to wait that long. To conserve natural gas hot water has already been cut off to flats in Kyiv, with similar cut-offs in other cities to follow

    1. Anonymous says:

      Yes, and reports of 2 Russian tour firms going bust, stranding Russian tourists in Greece, Bulgaria etc. Excuses of rouble weakness to blame.

      Still, Putin and his cronys have plenty of hotel rooms to fill in Sochi, so they’ll be making money out of a Russian middle class unable to travel. Likewise, I expect the nomenklatura will still get their fresh veges and their German supercars, it’s just the 99% of Russians who suffer.

      1. Anonymous says:

        ExpatinBG, thanks for your reply. Sorry to be so late in
        acknowledging it. The current American strategy seems to be to force Russia into letting Kyiv create a desolation in Donbass in call it peace. Supposing it succeeds, the devastation of the export powerhouse of rump Ukraine will leave it an economic basket case that the West will be hard put to support. If it fails, there are all kinds of scary scenarios that could play out. Putin has on several occasions said that it was a grave mistake for the Bolsheviks to expand Ukraine’s borders in 1918, which means he thinks the whole of South and East Ukraine should have remained part of Russia.

        Erin Ade was interviewing the American economics professor Steve Hanke about the American sanctions:

        https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCEQFjAB&url=https%3A%2F%2Fwww.facebook.com%2Ferinade2020%2Fposts%2F340619046101708&ei=AzDmU_qDPcyKyATU4YEo&usg=AFQjCNHNoqWPm9EYm2q1L9rvGK70FQG7Lg

        I expect those tourist firms went bust because they weren’t allowed to transact in US dollars anymore. Professor Hanke was saying it’s not very bright for the US
        to signal to the world that they can only use dollars for their transactions if the US likes their country’s policies.. It’s a step down the path to seeing the US dollar disappear as the international currency.

        1. Anonymous says:

          The USA cannot do much alone, it needs Europe to apply the painful sanctions. Hence the US has to accept compromises that weaken it’s policy influence. And Europe is dithering, little action on energy security.

          I wish I could offer a more positive option. Poroshenko won the election and chose to sign the European trade agreement. How else could the free world respond to invasion violating Ukraine’s sovereignity ?

          In the long run, sanctions did help get Milosevic to the Hague. That
          example of nationalism and it’s results for all former Yugoslav peoples
          bodes ill for the people of Eastern Ukraine who Putin claims to be
          “protecting”

          PS. I think that filling hotels in Sochi with Russian guests is a factor in the tour firm’s bankruptcies.

          1. Anonymous says:

            Thank you for your reply. Let’s not forget that the US helped start this mess. Victoria “F–k the EU” Nuland was busy planning to put the grossly incompetent Yatsenyuk in office just a couple of months before the unconstitutional removal of President Yanukovych. When she was doing this presidential elections weren’t scheduled until 2015. Yanukovych was from Donbass and a lot of the people around him were from Donbass. And now we have an insurrection in Donbass. Who would have thought? American foreign policy under Obama is just like a little kid playing with a box of matches.
            As someone who lives in the Balkans you should look up a publicity video that Yatsenyuk made about all the benefits to Ukrainians of joining the EU. In the background is a map of Europe showing all the EU countries the same colour, with Ukraine shown as one of them. Slovenia and candidate countries Macedonia, Montenegro and Serbia aren’t shown on the map because Croatia’s borders are shown as covering the whole of the former Yugoslavia. I kid you not.

    2. Anonymous says:

      Hi Andrew

      There was an estimate made for the effect of the Russian food sanctions by Repubblica.

      “Italy loses a market that is growing at the rate of 10% per annum and which in 2013 was worth already more than 700 million Euros.”

      Also in spite of the denial given to Reuters shown below this could easily be another problem for Unicredit bank.

      “UniCredit, the banking market leader in central and eastern Europe, said the sanctions would have only a “marginal” impact on its business there. Its regional subsidiary Bank Austria forecast solid profits in Russia despite the sanctions, thanks in part to its ability to raise money locally, though it warned of lost opportunities.”

      Thanks for the information about the Ukraine and the gas supply which I wasn’t aware of. It looks set to get worse doesn’t it?

      1. Anonymous says:

        Thank you very much for the information on Italian exports to Russia,Shaun. The information on the hot water being caught off came from Roman Olearchyk in Financial Times.

        http://blogs.ft.com/beyond-brics/2014/08/04/cold-rains-compound-misery-as-hot-water-limited-in-kiev/

        Yes, I agree, things look like they will get worse. I was
        rereading Richard Pipes Formation of the Soviet Union about the downfall of the first independent Ukraine after the Great War: “One cannot fail to notice a certain emotional instability and unrealism on the part of the leaders of the Ukrainian movement.” It rang a bell. President Poroshenko has not been dealt a good hand, but one really does wonder about a leader who says that the chivalrous Ukrainian military will
        never harm civilians, as if saying so made it so.

  8. forbin says:

    “part of the last century Italy’s economic performance was similar to that of France and Italy”

    Sorry ?

    typo?

    :-)

    1. Anonymous says:

      Hi Forbin

      Apologies. What I was trying to say/write was that from 1981 to Euro entry Italy’s GDP growth path was similar to France and Germany. Once it had the same currency it did and is doing worse sometimes much worse.

      To reply to your other comment I agree that a type of revolution will be needed in Italy for it to leave the Euro. As shown below Beppe Grillo still seems to have a stomach for the fight so there is always some hope.

      http://www.beppegrillo.it/en/2014/08/italian_economy_the_real_jinx.html

  9. forbin says:

    Hello Shaun,

    I do wonder when the economic forces will break the (dis) United States of Europe up.

    Seems pretty clear to me we had a triumph of optimism over rational thought when it was launched . If only the politicians had an ounce of economic sense ( and read history ) and did it properly instead of making such a cock-up

    oh well, seems the show is going on well , But don’t expect Italy to suddenly get a dose of common sense and leave the Euro ….. after all they’re on T’rack and , regrettably , will follow Cyprus and Greece.

    Forbin

  10. Paul C says:

    Shaun,
    I like Italy so I always follow your subject matter in this geography. When I was there in May and July, surfing! I saw plenty of wealth driving around and what looked like property ownership by Northern Europeans around the Med. Your numbers are revealing, and 7% versus 2.83% is the practical answer, as long as we can prop up any national debt and deficit with fake money then the show will go on. I left my car and surfboard near Pisa between surf trips and in a very Italian way they broke-in, fiddled with everything but left it all for my return. Like I said I like Italy :-)
    Paul

    1. Anonymous says:

      Hi Paul C

      I like Italy too as it is a place with both beauty and charm. The north is economically much stronger than the south and as I have written before I could see Italy splitting into two parts.

      What was their game with your car do you think?

      1. Paul C says:

        Shaun, It’s a little Fiat 600 (appropriate for Italy) they saw a strange board thing across the rear seats with a blanket on it, I guess intrigue really drove the break-in. When they discovered a broken (folding) surfboard I guess that they were disappointed. I parked the car in the residential district because you find that local folk do take an interest in property so I guess some “community oversight” stopped the car getting ransacked even though the door was slightly ajar (probably for weeks). :-)

    2. James Brown says:

      Hi Paul

      Perhaps they were looking for info to clone you. I hope not.

  11. Eric says:

    Good stuff again Shaun,
    When we have an environment where interest rates don’t reflect risk; whether it’s US sub-prime mortgages or Italian 10-year Bonds; it amazes me how easy it is to glaze over. It seems to take a “heads up!” event to get any central banker interested – then they work to get the rates down again.
    I guess Governments would love to borrow as much as possible for as long as possible for as little as possible; but surely there is a limit. “Curiouser and curiouser” said Alice.

    1. Anonymous says:

      Hi Eric and thank you

      At the moment things are being driven by the rally or if you prefer squeeze/bubble in the German bond market. As new high as followed new high the ten-year yield has fallen to 1.07%, not quite what you expect in a recovery phase! Something has to give…

  12. Anonymous says:

    Hi Londoner

    It feels like that to me too….

  13. Anonymous says:

    Hi Pavlaki

    I think that the foreign exchange markets do still use growth prospects as a factor for a currency and I think that explains the rise of the UK Pound £ since March 2013. As to the Euro I think it has gained from the fact that whilst the US has nearly ended its QE programme the total has increased. By contrast the balance sheet of the ECB has consistently shrunk. This has taken place Friday after Friday as LTRO funds have been returned.

    So the Euro has gained support from this and has fallen less than it would have done otherwise.

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