Derek Pain: After some rocky adventures, BT is again in good shape

No Pain, No Gain

A famed City editor of yesteryear relied heavily, when judging the merits of an investment, on the type of service offered by the company under investigation. Evidence of an efficient and friendly environment would endear him to the business and often contribute significantly to any share recommendation he made.

I am talking about the distant pre-internet, pre-big bang City. In the 1950s and 1960s, before corporation tax and price earning ratios were imported, dividend and earning yields reigned supreme. Investment tools were in short supply; hence our City Ed's dedication to personal service. I found myself recalling his attitude last week when I was confronted, just as I was about to send the no pain, no gain column to The Independent, with unresponsive telephone and broadband. The initial reaction from my supplier, BT, was far from satisfactory. Mobile attempts to reach the telecom behemoth produced computerised voices which offered no joy at all. Once we made contact, via a BT line, the group appeared to swing into action. In two days the fault, that seemed to hit others in my vicinity, was fixed. So, after a rather frustrating intervention, our lives were back to normal.

What, I wondered, would the departed Fleet Street stalwart have made of the BT response. Despite the computer blockage, I think he would have been satisfied. After all, what I suspect was a fairly serious outside fault was fixed quite quickly and I doubt if he would have felt it necessary to blackball BT as an investment.

In these days the old hack's somewhat simplistic investment approach would produce hollow laughter. Indeed, public facing groups with lamentable records of consumer satisfaction are not punished in the City. Very often they are accorded fancy share ratings. It could be the result of today's allegedly more sophisticated approach. Many love to indulge in complicated calculations and, of course, the internet, with its many wondrous aspects, has transformed the supply of sound (and indifferent) information.

There is no doubt that investors, big and small, now have much more detailed knowledge than was available in past years. But is the nitty-gritty of front line investigation too often ignored? I realise analysts often embark on so-called site visits and attend conferences. But they can be carefully orchestrated. I once knew a brewery analyst whose knowledge of some companies – and people – in the industry was astonishingly detailed. He could never have obtained such information studying yearly reports, or attending site visits. I suspect he "endured" more than the occasional pub crawl in his thirst for knowledge.

Whereas brewing is still a relatively simple industry, the advent of sophisticated computerised shenanigans could have made on-the-ground research more complicated and difficult. Still it should not be ignored.

Back to BT. I have been a (very) small shareholder since privatisation in 1984. It has not been an outstanding investment. Indeed at one time BT was forced into a rights issue. Still over the years dividends have been fairly consistent and, allowing for the hiving off and subsequent takeover of the mobile phone side, I am in the money. Of course, I would have been far happier if I had sold during the madness when the shares were around 1,500p against, as I write, 195p.

At one time I contemplated adding BT to the portfolio, largely because the shares appeared underpriced and the dividend yield was more than 5 per cent. But I have since abandoned any such thoughts. Today, the shares are near their two-year high and the yield is around 3.6 per cent.

Still, there is evidence that after some rather rocky adventures, BT is again in good shape. Last year adjusted pre-tax profits rose 20 per cent to £2.1bn with the "true" figure 71 per cent higher at £1.7bn. And the year's dividend is up by 7 per cent.

I doubt if in my lifetime BT shares will recapture the exhilarating levels achieved during the dotcom madness, even if recent activity indicates the stock market could experience another possibly farcical internet surge. Yet for long-term investors, who like the comfort of dividend payments and hope for steady capital appreciation, the telecom group has undoubted attractions.

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