The halving of the BT PLC (LON:BT.A) share price over the last three years strongly suggests it should have raised fresh capital back in 2015.
A massive pension deficit of £11.3bn, net debt of £12.2bn and a commitment to paying out £1.44bn in dividends each year has left the telecoms giant looking in need of a cash fillip, despite it typically making £2bn in post-tax profits a year over the last five years.
If BT is the poster-boy for the cash call collective, it is probably not the only FTSE 350 stock in need of a rights issue. Directors tend to try to avoid rights issues if they can as it often leads to the directors getting canned but sometimes, as with yesterday's cash call from Mothercare plc (LON:MTC), sometimes it is unavoidable.
Mothercare was once a bona fide mid-cap worth about £830mln five years ago but is now worth a lowly £33mln while we will do Carillion shareholders a favour and not mention how the company could still be in business now had it bitten the bullet and rattled the collection tin years ago.
A trawl through the FTSE 350 suggests there are a large number of companies that could do with asking for a hand-out.
In a bit of a state ...
A fairly large proportion of the stocks on the red flag list are in industries that were previously state-owned. You can see why previous governments wanted to get them off their hands and, equally, you can see why some political parties want to take them back into state ownership.
BT itself, of course, was once owned by the state, and for much of its history money was spent on the workers and their pension plans rather than on dividends; much the same applies to utility companies such as Severn Trent PLC (LON:SVT), Pennon Group plc (LON:PNN), National Grid PLC (LON:NG.) and British Gas owner Centrica PLC (LON:CNA), all of which have built up sizeable debts and, in some cases, pension deficits as well.
Water and waste company Pennon does not look overly stretched while Severn Trent seems intent on reducing its deficits by selling off assets, so we'll give them a pass.
National Grid is valued at £28.4bn and has net borrowing of £27.5bn. On top of that, it has a pension deficit of £1.9bn. It pays out £1.46bn in dividends a year, otherwise what would be the point of it, other than to … er … ensure we all have electricity when we switch the kettle on.
Add on interest payments and it is paying out £2.6bn a year to banks and shareholders, compared to annual pre-tax profits of around £3bn over the last couple of years.
With gearing – that’s total debt as a percentage of net asset value - of 141% it could probably do with getting out the begging bowl or selling off some assets.
Centrica, cynics would say, would rather increase prices than rattle the collection tin.
It had net debt at the time of its last full-year accounts of £3.5bn and a pension deficit of £886mln. It typically retains £1.8bn in profits after paying £661mln in dividends; interest payments added to dividend outlays pushes the total above £1bn a year, which by the standards of the sector is relatively comfortable.
A rights issue may not be on the cards but a dividend yield of 8% suggests the market is expecting a dividend cut down the line.
READ Market ‘wary’ Centrica could cut dividend, says analyst
Throwing the dividend under the bus
Britain's railways, of course, were also once state-owned so it is, perhaps, appropriate that train and bus operators FirstGroup PLC (LON:FGP), National Express PLC (LON:NEX) and Stagecoach Group PLC (LON:SGC) all look weighed down by pension troubles.
FirstGroup has already binned its dividend, while Apollo Global Management took a look at the company with a view to making a bid but walked away last week.
READ FirstGroup shares weak on report private equity firm Apollo Global will not be making a takeover offer
The company is set to announce results at the end of this month; if it does not announce a cash call at that time it may be that management of the Greyhound buses operator think the company is out of the woods.
The pension deficit at National Express is a mere £94.5mln but the debt pile is £911mln, which is a bit worrying for a company valued at around £2bn but recent trading has been positive. The group derives the majority of its earnings from outside the UK, which is probably a blessing given the hash transport companies seem to make of running rail franchises in the UK.
Stagecoach has not yet cut its dividend but the stock is yielding 7.7% so the market is sceptical about its chances of maintaining it. It has a pension deficit of £233mln and net borrowing of £446mln, which is about half of its market capitalisation.
In February, the UK's transport minister, Chris Grayling, said Stagecoach got its numbers wrong when it bid to run the East Coast mainline rail franchise and there would be no bailout from the government, so it's over to you now, Stagecoach shareholders …