Investment View: No point in holding the line for underperforming BT

BT. Our view: sell. Price: 224.9p (+0.6p)

Is BT the incredible shrinking telecoms company?

It looks that way if you run the slide rule over its revenues. In the year to 31 March 2009 they came in at £21.4bn. Since then they have been steadily declining as the company reshapes its business and tries to make it look like a halfway decent investment proposition. That decline is going to continue through to 2014 when revenues ought (ought) to bottom out at about £18bn. To be fair, the picture looks a little better when it comes to earnings. Earnings per share stood at 16p in 2009 and should hit 25p by 2014.

But if you look historically, that's not that much different to where they were in 2004. Earnings have bounced up and down a bit since then, but the company has basically done nothing very much throughout the noughties. That does make it, for example, better than a bank. But that isn't saying very much. The word "mediocre" springs to mind and BT, by dint of its previous position as a state monopoly, generates quite a bit of cash without having to really earn it, through charging other phone firms for using its network for example.

It also faces the problem of pricing. Your phone bill might be rising but telecoms pricing is not keeping pace with overall inflation, in part thanks to the regulators.

All that and the perennial problem of the company's multi-billion pound pension fund. Even while there has been work to address its funding issues this can't (and shouldn't) be ignored by potential investors. Fancy ads featuring (somewhat) attractive young actors can't disguise this. And if you've ever been a customer of BT's broadband services they might just prompt a bitter laugh.

With the shares at 210p I suggested that it was time to cash in the last time this column looked at the shares in March. They had been on a good run, and they've not really found much in the way of direction since, although they are a little ahead of that now.

They're still not particularly expensive, trading at just nine times forecast earnings for the year ending 31 March and offering a prospective yield of 4.1 per cent, with the dividend more than twice covered by earnings.

But let's look at the biggest rival, just for comparison's sake, on valuation grounds. Vodafone reports its interims today. Unless the company has suddenly discovered gravity-defying boots, they're unlikely to make pretty reading: globally it's challenging for telecoms providers with the world's economy in a less-than-pretty state.

Vodafone is more pricey on its earnings multiple: it trades on more than 10.5 times earnings, although it's worth remembering it pays lots of those earnings out. The dividend yield of 7.5 per cent is very favourable.

I know the company's tax affairs have created a certain amount of debate and now the Indian authorities are approaching cap in hand.

My view is that it is up to the authorities to take on multinationals that aren't paying their way and, if they can't, for our political masters to shape the rules to allow them to seek a fair deal (for the record, Vodafone disagrees with India's taxman and thinks its critics are being unfair).

When it comes to the investment case, Vodafone looks interesting. While I don't expect much growth in revenue over the next two years (it will likely fall slightly). it has been far more consistent than BT on this front. Same for earnings. If the results, and the shares, look shaky today I'd be a buyer. I'd be a buyer if the reverse is true. When it comes to telecoms Vodafone is the best of a pretty ropey bunch and that yield is worth having. The shares are arguably undervalued.

On the flipside, get out of BT. Even if the shares don't look terribly expensive, an investor has to ask themselves what the point is of being in a company which isn't going to grow until 2015 and doesn't have the saving grace of a dividend yield worth getting excited over.

BT's chief executive Ian Livingston has made a decent fist of tackling the pension deficit, cutting costs and increasing the divi. But his ambition to grow the top line, laid out in May 2010, has eluded him. Hang up. There are better opportunities out there. Like Vodafone.

Suggested Topics
PROMOTED VIDEO
News
REX/Eye Candy
science
News
A photo of Charles Belk being detained by police on Friday 22 August
news
News
i100
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Google Doodle celebrates the 200th birthday of Irish writer Sheridan Le Fanu
tech
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
News
i100
News
In Eternal Sunshine of the Spotless Mind Jim Carrey and Kate Winslett medically erase each other from their memories
scienceTechnique successfully used to ‘reverse’ bad memories in rodents could be used on trauma victims
Arts and Entertainment
Singer Pixie Lott will take part in Strictly Come Dancing 2014, the BBC has confirmed
tv
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

C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

Trade Desk FIX Analyst - (FIX, SQL, Equities, Support)

£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...

Day In a Page

Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?