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How is the BT share price performing mid-broadband rollout?

The BT [BT-A.L] share price has remained elevated amid its national programme to install superfast broadband in the UK. But staff issues post-Brexit could slow down its rollout, a senior executive at the company warned last week.

In its last manifesto, the UK’s Conservative government promised to deliver “full fibre and gigabit-capable broadband to every home and businesses across the country by 2025”. BT’s contribution will be crucial to achieving this goal.

But Clive Selley, CEO of Openreach, the BT division that connects fibre optic networks to homes, has said that the UK lacks the skilled workforce to make this a reality, in contrast to countries like Spain or Portugal. He described the process of hiring recruits from such countries now that the UK has left the EU as “torturous”.

On 14 June, the day of his comments, BT’s stock price remained flat. Year-to-date, it is up 11.1% from 169.55p at the end of 2021 to 188.45p at the close on 20 June. This is compared to the FTSE 100’s fall of 5%.

Selley said reaching 97% of homes by 2030 was possible, but further subsidies would be needed to reach this figure. Openreach is spending £12bn to connect 25 million of the UK’s 32 million households by 2027. So far, 7.6 million homes have been connected in a programme that kicked off in 2018.

A takeover for BT in 2022?

BT’s commitment to the full-fibre broadband programme has apparently made it an appealing long-term investment. Earlier in June, the ban on a takeover by French billionaire Patrick Drahi lifted. 

Drahi owns Altice Europe NV, and is now BT’s biggest shareholder, holding 18% after bumping up his stake by 50% in December 2021. BT is also part-owned by German giant Deutsche Telekom [DTE], which owns 12%. 

It’s possible Drahi could buy out the latter. Deutsche Telekom CEO Tim Hoettges previously hinted he’s prepared to be a “kingmaker” in any deal. New Street Research analyst James Ratzer told Bloomberg that he believes Deutsche Telekom could trade its stake in BT for an equivalent stake in Altice USA [ATUS].

Indeed, Philip Jansen, CEO of BT, told reporters in May: “You’ll hear all the CEOs around Europe talking about the theme, about further consolidation.”

However, a takeover by Drahi is by no means guaranteed. In May, BT announced the UK government was to investigate Drahi's increased stake in the company, exercising its "call-in powers" under the National Security and Investment Act. Karen Egan, a telecoms analyst at Enders Analysis, said this intended to signal to Drahi "not to assume" a bid would be greenlit, reported the BBC. HSBC analysts also said the government was communicating Drahi “is not a welcome owner of UK strategic infrastructure”.

BT was the world’s first telegraph company, founded in 1846, and is regarded by many as a national institution. It remains the UK’s biggest broadband and mobile network operator. Its share price fell 4% in response to the news on 26 May. 

Revenues down but outlook remains positive

Recent figures value BT at £17.6bn. In its last earnings release in May, the company’s pre-tax profits rose 9% to £2bn for the year ending 31 March.

Despite outside pressures and the cost of living crisis, BT reported a relatively good year, reintroducing its dividend after a year off in 2020/2021. For the year ending March, it gave a payout of 7.7p per share, equal to a yield of 4.3%, which sat above the FTSE 100 average of 3.5% at the time. It also has a lot of infrastructure in place, meaning its operating costs can be minimised.

This year, BT signed a deal with Warner Brothers Discovery to create the joint Eurosport UK channel, securing an upfront payment of £93m, with performance-related payments likely in future.

However, the company’s sales are in an overall declining trend. Last year’s revenues fell 2% to £20.9bn, compared to £24.1bn in 2017.

According to MarketScreener, a consensus of 22 analysts rate BT as an ‘outperform’, with an average 12-month price target of 220.07p. That would represent a 16.8% rise on the latest closing price of 188.45p on 20 June.

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