Pensions cloud over BT

Ad recovery will boost WPP; Take out insurance with Irish Life

Just over a year after Ben Verwaayen started as chief executive of BT, it seems the honeymoon is well and truly over and calls for action are getting louder.

But BT is caught between a rock and a hard place. Many analysts accuse it of having become a boring utility with few real growth prospects yet urge the company not to do anything too radical, such as a big acquisition, that might make it a riskier investment proposition.

They are right to be concerned about growth. Embarrassingly, Mr Verwaayen has already had to abandon the revenue targets he set for the business only six months after announcing them.

BT's core market is not getting any easier. It is facing increasing competition in the domestic fixed line business from new entrants such as Carphone Warehouse and the supermarkets while consumers are using mobile phones more and more.

Those analysts cautioning against serious corporate action are probably also right. It was a corporate spending spree that was largely responsible for the mess BT found itself in two years ago with close to £30bn of debt. Today, BT's estimated £10.3bn of debt looks relatively minor compared with the debt mountains of France Telecom and Deutsche Telekom. And, if you believe Mr Verwaayen, the company can get decent organic growth from broadband and a host of other offerings such as IT services.

Analysts are forecasting profits, before exceptional items, of about £1.8bn for the year just ended, although the figures are likely to be clouded by a pension fund shortfall.

Based on forecast earnings of 15.9p a share for the current year, the stock is trading on a forward multiple of about 11.6 times – broadly in line with other UK utilities. Until the pension funding issue is out of the way and until there is more evidence of a convincing strategy, that seems fair.

Ad recovery will boost WPP

Sir Martin Sorrell has been the doctor doom of the media industry for a long time now. However, last week, he started to sound upbeat when reporting first-quarter figures for his WPP advertising giant.

The man who came up with the "bath-shaped" advertising recession, said that there was "definitely more stability" in the market. Underlying first-quarter revenue was flat, year on year, making it the first quarter in which like-for-like revenue did not decline since the third quarter of 2001.

The turnaround was led by the US. Sir Martin stuck with his forecast that things won't really pick up until next year, when the US presidential elections and the Olympic games should increase ad spend. For the hard-hit media sector, the recovery cannot come fast enough.

WPP has a great global position and Sir Martin's relationship with existing and potential new clients is impressive. Yesterday he kept up the pace of bolt-on acquisitions, buying a market research agency, Sadek Wynberg Research, for an undisclosed sum.

The stock rose 5 per cent to 450p, well off the 12-month low of 320p seen in March, putting it on a forward multiple of 17. However, the shares will gain further as more evidence of recovery emerges. Buy.

Take out insurance with Irish Life

Given that the entire life insurance industry is out of fashion, Irish Life & Permanent has not done that badly to see its shares fall from 1,081p in June last year to 675.25p yesterday.

Compared with rivals in the UK and on the Continent, Ireland's largest life insurer and mortgage provider has been seen in some corners as a safe haven, thanks to its strong capital base and dividend cover.

Its exemption from the capital concerns which have dogged bigger players has also allowed Irish Life to quietly pile on new business. After the company's purchase of a bank, Irish Permanent, in 2001, mortgages have been particularly strong thanks to the booming housing market.

While a slowdown in house buying is expected, the company said yesterday in a trading update that its levels of mortgage approvals were still ahead of last year. And, thanks to its conservative lending policy, it is not at risk of a surge of bad debts if the economy turns down.

The company is on track to make €326m in pre-tax profit this year and trades at a premium of one of a half times its embedded value – in effect its net assets. That isn't cheap compared with its peers, but it is justified by its prospects for further growth. A long-term buy.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us