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Berenberg thinks new BT boss may cut telecoms giant’s dividend

Berenberg analysts have argued that BT doesn’t have enough cash to fund both its dividend and the much-needed reinvestment

new bt boss philip jansen
CEO Philip Jansen will outline his plans in May’s full-year results

Investors hung up on BT Group PLC (LON:BT.A) on Tuesday after Berenberg downgraded the stock on fears that the dividend could be cut.

BT shares have tanked over the past two years, largely as the result of a huge accounting scandal in its Italian division.

READ: BT gets hefty upgrade from US broker

The stock has almost halved over that period, and one of the things preventing the telecoms giant from plunging any further has been its dividend which it has so far managed to maintain.

But Berenberg thinks new boss Philip Jansen should favour investment over shareholder returns if he is serious about returning the fallen beast to growth.

It points out that BT’s free cash flow is £2.5bn, which is £1bn more than the cost of paying out its dividend – but is that enough headroom?

“From this £1bn, BT has to support the pension deficit, buy spectrum, buy back employee share options to prevent dilution, and fund restructuring,” said analysts in a note to clients.

“If new CEO Philip Jansen wants to increase investment to drive a return to growth, this would shrink the £1bn of headroom for such costs, putting the dividend under pressure.

“We thus see May’s full-year results as a risk and downgrade to ‘hold’.”

Shor-term pain, long-term gain

The number crunchers reckon prioritising investment over the divi is probably “right for the long-term”, although they are aware that investors “will not like it”.

As well as downgrading its recommendation, Berenberg also chopped tis price target to 260p from 275p previously.

BT shares were down 3.2% to 220.1p in early trading on Tuesday afternoon.

Quick facts: BT Group PLC

Price: 108.05 GBX

Market: LSE
Market Cap: £10.72 billion

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