BT braces for the challenge from cable

THE INVESTMENT COLUMN

BT may have seen off the half-hearted attack on its domestic market from Mercury, but it is already facing what looks like being much more determined opposition from a new upstart in the form of the burgeoning cable industry.

For the first time, BT's domestic network shrank in the three months to March under the onslaught of its newest competitor. Underlying growth in the group's 20.6 million domestic subscribers remains about 2 per cent a month, but since Christmas cable groups have been pinching a little more than that, cutting annual growth to less than 1 per cent.

BT, though, is clearly capable of looking after itself, as yesterday's modest fall in profits for the year to March, both before and after funnies, illustrates. The costs of the last year of the massive redundancy programme soared from pounds 517m to pounds 820m as more expensive senior staff were drawn into the net, but that was partially offset by a pounds 241m profit on the sale of the stake in AT&T and a pounds 75m gain on the early redemption of government debt.

Putting that lot on one side, underlying earnings per share grew 1.8 per cent. That is an impressive result, given the RPI-7.5 per cent price formula under which BT has been operating for about two years.

The price cuts forced on it by the new regime cost over pounds 800m in total last year, with more than pounds 600m, or 12 per cent, lopped off inland call revenue only partially made up for by 7 per cent growth in domestic call volumes.

And while BT faces a tough battle against the cable operators at home, growth in annualised international call volumes picked up to 5 per cent in the fourth quarter, after the worrying dip to 4 per cent seen in the second and third. It is also wisely providing for the future with Concert, the data-link joint venture with MCI which will lose money heavily in the short term but must represent the way forward.

Early gains in the shares were reversed yesterday as the market took on board a veiled warning from Sir Iain Vallance, BT chairman and chief executive, about the likely impact on dividend growth of increased competition, regulation and capital expenditure.

If growth in the payout is cut from last year's 6 per cent to 5 per cent in the current period, the shares, down 2.5p at 400.5p, stand on a prospective yield of 5.8 per cent. With profits unlikely to make much progress beyond pounds 2.9bn this year, that seems to fairly discount the risks.

Vosper waits for ships to come in

Building warships is a feast or famine business and unless Vosper Thornycroft secures a big order soon it may find itself going hungry. Vosper has had a good run, and yesterday's figures again show that the Southampton defence contractor has been skilfully managed in an industry stuffed with overcapacity.

Pre-tax profits up 16 per cent at pounds 25m, record turnover of pounds 232m, and a healthy pounds 600m order book paint a bright picture. Top this with pounds 107m stashed in the bank, and it looks like full steam ahead on the Solent.

But with the shares racing ahead in recent weeks, it is worth remembering that Vosper has a downside. The bulk of existing orders end in mid-1997, leaving Vosper with a contract to deliver just one minehunter a year until 2001, certainly not enough to sustain the current 3,100-strong workforce.

Vosper protests that there is plenty of work on the horizon but the time- lag between placing a defence order and starting work on it can be frustratingly long.In such a fiercely competitive industry Vosper is by no means certain of winning one, let alone the couple of contracts it needs for the long term. In the UK it faces stiff competition from VSEL and GEC. And Kuwait's decision to award a pounds 316m order for eight patrol boats to France's CMN shows the international market to be similarly tough.

The shares, which have benefited recently from the VSEL bid battle, were off 14p yesterday to 819p. Panmure Gordon's profit forecasts of pounds 27.3m this year and pounds 29.4m next put them on a forward rating of 15.5 and 13.4 respectively - demanding, but then Vosper has a record of turning orders into profits. The expected dividend - yesterday's final of 14.9p makes 21p for the year - is secure.

Burton Group

looking better

John Hoerner, Burton Group's American chief executive, says his ambition is for Burton to be treated as a real company and not just a plunder stock. Given the number of false dawns since his arrival in 1992, fulfilling that ambition may be some way off. But yesterday's improved results showed the company staggering towards some kind of respectability. Pre-tax profits for the half-year to March increased from pounds 35m to pounds 67m on sales steady at around pounds 1.03bn. The chain stores such as Burton menswear, Top Shop and Dorothy Perkins all made a profit for the first time in years.

Burton has done much to move away from being a mark-down masochist to one that charges full price for most of the year. But the company is still a mixed bag.

While the Debenhams department stores are powering ahead, the multiples are still proving problematic. Debenhams, which increased profits in the period from pounds 44m to pounds 51.6m, has identified 10 locations for new stores. The 1,200 multiples, meanwhile, could only manage pounds 15.8m, and Burton and Principles are still likely to slip into loss in the full year.

Burton is trying to inject life into a bunch of brands that looked dead several years ago. Around pounds 4m was spent on a Dorothy Perkins revamp during the first half. The Top Shop formats will all be re-fitted by the end of next year and Evans, the larger-size shops, by this year-end.

But Burton still has too many shops spread over too many formats, several of which overlap. While Sears is jettisoning old shoe-shop brands to concentrate on concepts such as Shoe Express and Shoe City, Burton soldiers on with the same old names. Chelsea Girl, the 1970s boutique retailer, bit the bullet in the late 1980s and has transformed itself into the highly successful River Island. Such radical action may be required at Burton if the menswear chain is ever to shrug off the ghost of its error-ridden past.

Analysts are forecasting full-year profits of around pounds 82m and so far the City likes what it sees, marking the shares up 5.5p to 85p yesterday. But with Mr Hoerner making cautious noises about consumer confidence, the shares, on a prospective p/e of over 20, look to have run too far.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • 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.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

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

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'