BT (LON:BT) in a holding pattern
Adjusted revenues fell some 1% below consensus compiled by BT. And although underlying income (EBITDA) of £1.81bn beat forecasts slightly, it was still 4% lower on the year, dragged primarily by rising pension costs and ongoing softening of Global Services revenues. In short, BT remains in the holding pattern that followed measures to correct the Italy scandal and contain deterioration of public sector business. And whilst the dividend commitment was given in good faith, to honour it, the group will have to ignore financial headroom that is declining as pension obligations and capex imperatives rise.
Covered for now
Investors can therefore rightly wonder how credible it is to expect heedless progression of BT’s dividend. The free cash flow that must keep the dividend ‘covered’ or else, has been steady just short of £4bn since the middle of last year, but has been creeping lower as remediation costs and pensions bite. Q3 free cash flow was £689m, down 23%. A potential step higher in investments is also possible: BT shows signs of relenting in the face of official and external corporate pressure to go all in on fibre. Elsewhere, the pricing of sports rights is likely to become more lavish, not less.
No signal
With dividend talk crowding out earnings news on Thursday, CEO Gavin Patterson told the media that the group’s decision to set the interim payout at 30% of the full year sum did not signal a change in the group’s pledge on progression. The reality is that the commitment could turn out to be more pliable than BT intends, if pressure from other obligations increases and cash generation keeps drifting lower.
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