Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

BT tops FTSE 100 in week of global market turmoil amid break-up speculation

AJ Bell's Russ Mould thinks a break-up of BT is unlikely but expects to see a new strategy for the business from the next chief executive who replaces Gavin Patterson
BT has been trying to bring down its massive pension deficit, which stands at £3.9bn

BT Group plc (LON:BT.A) has topped the FTSE 100 this week amid speculation that it could be broken up.

Share price gains for the telecoms giant come despite a turbulent week in global financial markets, led by a slump in the value of US tech giants including Apple Inc (NASDAQ:AAPL) , Inc (NASDAQ:AMZN), Netflix Inc (NASDAQ:NFLX), Microsoft Corp (NASDAQ:MSFT) and Google's parent company Alphabet Inc (NASDAQ:GOOG)

US stocks suffered their worst fall in more than eight months and the FTSE 100 lost £26mln yesterday. Stocks have recovered today but the FTSE 100 is still down about 260 points since the start of the week at 7,050.

AJ Bell investment director Russ Mould pointed out that the market sell-off this week hasn’t dragged everything down in price with BT among the best performers.

“Looking at the data since 3 October, which marked the last time the FTSE 100 closed above the 7,500 level and last night’s market close, nine stocks actually increased in value,” he said.

“BT is at the top of the list amid chatter that it could be broken up. Gold miners Randgold Resources Ltd (LON:RRS) and Fresnillo PLC (LON:FRES) benefited from a resurgence in the gold price as investors flocked to supposedly safe-haven assets during the market sell-off.”

On rumours of a possible break-up of BT, Mould thinks such a move would be unlikely given that the company has made good progress in repairing its relationship with the regulator and that it is not under pressure from investors to restructure the business in such a way.

He also believes the company’s huge pension deficit would also present too much of a hurdle for a break-up.  As of June 30, the deficit stood at £3.9bn.

Next CEO has 'big job on their hands'

BT is currently yet to find a replacement for Gavin Patterson, who revealed in June he would be stepping down as chief executive towards the end of this year.

READ: BT Group reportedly in advanced talks to appoint outgoing Worldpay boss to replace Gavin Patterson

Mould said whoever takes the helm next has a "big job on their hands" due to the challenges BT is facing from mounting competition and a large pension deficit.

More positively, BT has successfully dealt with recent regulatory issues, having settled a dispute with the Ofcom over the structural separation of network division Openreach and surviving the government’s Wholesale Local Access review.

New controls on wholesale prices announced by Ofcom in February were not as bad as many had feared as the regulator wanted to encourage more investment in upgrades for the UK’s broadband network.

The Openreach division plans to replace the ageing copper lines with fibre optics to bring ultrafast broadband to three million homes and businesses by 2020.

BT shares remain at levels seen 22 years ago but dividend a big draw for investors

While BT’s shares have performed strongly this week, Mould noted that the price has not moved a great deal higher since levels seen in 1996. Nevertheless, investors still see value in the stock as BT continues to reward shareholders with a healthy dividend yield.

READ: BT dividend cut cannot be ruled out, says Morgan Stanley ahead of earnings  

Mould expects to see a fresh strategy from the next BT boss to grow the business but reckons the dividend is safe for now despite speculation that it could be at risk as the group prioritises investment in its fibre upgrade, continues to spend money on content for its TV offering and faces competitive pressures to cut prices for mobile packages.

View full BT.A profile View Profile

BT Group PLC Timeline

Related Articles

August 19 2018
BATM's Networks & Cyber division returned to growth in 2017

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use