Private Investor: I'm sorry, British Telecom, your number is up

Click, click, brrr. I've finally hung up on
British Telecom.

Click, click, brrr. I've finally hung up on British Telecom. Having bought its shares when they were privatised and at various points in between, I know that my losses on them exceed my profits, but, just for a change, I've decided to cut my losses. I cannot think of a single reason to hold let alone buy BT shares, except for the possibility that they might, in due course, become some sort of target for someone.

The trouble is that, although the company is a shadow of its former self, it is still big, with a market capitalisation of about £17 billion, even in its current becalmed condition. So any telecoms group or other buyer seeking to pick it up would need to have a certain amount of muscle. It was all so different once upon a time.

When I sold my shares at just below 200p last week, I shuddered at the memory of the peaks they scaled in the dotcom boom - £15 or so, I seem to recall, at their peak. When they went down to £8, when the bubble peaked, I bought some more, because they looked cheap. Of course, they only looked cheap in relation to their vastly inflated levels during that boom, but then I - and others - couldn't quite see that. Foolish indeed.

For me, it all went wrong when BT floated off its mobile arm, once called Cellnet, then MMO2 and now just O2. Remember Cellnet? That really was a business with a future: mobile telephony. BT had to sell it because it had racked up so much debt, not least through what it had to pay the Government for its 3G licence for, ahem, mobile telephony.

All BT had left was the fixed-line business, a load of phone boxes, inert domestic customers, and regulators that seemed to want to unbundle it out of existence and wouldn't even let it control its own "local loop". And this is on one of the most competitive markets going, with suppliers from Tesco to Wanadoo offering broadband for next to nothing.

BT is joining the fight, we know, and is well placed to win some customers, but the attrition of its old customer base looks set to continue. It would have all been very different if it had hung on to its mobile business, in which it would have maintained a hedge against the future.

Now, I see, O2 has a market capitalisation not that far behind BT - about £11bn. Admittedly this has been pumped up by a good deal of takeover talk, but it is quite remarkable how it has turned itself around. Last week's trading statement knocked 10 per cent off the shares, I admit, but there were hopeful signs alongside forecasts of lower growth and provisions for redundancies.

First, O2 is going to invest in extra staff in customer service, which is now the main focus, as telecoms focus on customer retention rather than acquisition. Secondly, rather more significantly, the German end of the business, long a source of misery and confusion, seems to be picking up subscribers.

O2 shares trade at the equivalent of 14 times likely earnings per share for the next financial year, and give a healthy dividend yield of 2.9 per cent. Which makes them not bad value, but not as good a bet as when I bought them at about half that level after the telecoms boom collapsed. So for me, O2 is a hold rather than a buy.

So what is a buy? Well, Serco, which I wrote about a couple of weeks ago. It has a finger in virtually every public service outsourcing pie from the London Docklands Light Railway to the Leicester Royal Infirmary. Indeed, it operates in markets in Europe, the Middle East and North America. Dividend policy is progressive (up 12 per cent last year). The only worry is gearing, at 70 per cent, a result of a capital restructuring a couple of years ago, but it is long debt at reasonable rates, so it should be manageable for such a fast-growing business.

I bought at 244p. That's down from its peaks of 600p a couple of years ago but, unlike with BT, I expect it will see those heights again before too long.

s.o'grady@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Client Services Assistant

    £18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor