Full-year results from BT Group PLC (LON:BT.A) could see the telecoms group finally accept the seemingly inevitable and cut its dividend on Thursday, while the Bank of England meeting will be in focus later in the day.
BT, which has cut its payout twice before in its stock market-listed history in 2001-02 and 2009, has kept its lips zipped so far amid the tumult of dividend dumping by other blue-chip firms in recent weeks.
“BT’s uncovered dividend remains the elephant in the room – given rising competitive pressures, rising capex, likely elevated pension contributions from 2021, material COVID-19 and macro uncertainty,” Barclays analysts said in a recent note.
Research from JPMorgan published this week found that 72% of the former state monopoly's investors would support a sizeable dividend cut.
The coronavirus crisis provides a good excuse for a board that has so far been unwilling to make the move, despite chairman Jan du Plessis saying last year that the company will consider reducing the dividend in “a year or two”.
Doubts had been lingering about the sustainability of the dividend even before the coronavirus crisis, due to the cost of BT's investment in its broadband and 5G roll-out.
The current implied dividend yield of 13% looks “too good to be true”, said Russ Mould, especially after the recent cut from Royal Duch Shell PLC (LON:RDSA), which was the oil major's first payout reduction since the second world war.
With BT shares down 40% so far this year, taking its five-year decline to around 75%, Mould said it “suggests the market is worried about how BT can compete on so many fronts – fixed and wireless telecoms, broadband, TV and sports broadcasts – when it has a lot of debt, a big pension deficit and is hemmed in by the regulator Ofcom on one side, a host of competitors on another and value-sensitive customers on another, all of whom are capable of switching from one service provider to another”.
Bank of England meeting of interest
Having already cut the UK base rate to just 0.1% the Bank of England's tools are current fairly limited, though there will still be plenty of interest in this month's meeting.
For one, while some central banks have ruled out further rate cuts, the BoE has not referred to any limits on reducing rates further, meaning zero could be on the cards, as well as further quantitative easing (QE).
“We don't expect the Bank of England to add fresh stimulus this week, although the pressure to beef-up its QE programme will build over the next few months, not least because the economic recovery will be very gradual,” said economists at ING.
“We think policymakers will push back on the idea of a 'V-shaped' recovery when it unveils new forecasts on Thursday.”
In March, new BoE governor Andrew Bailey unveiled a range of measures designed to combat the economic impact of the coronavirus pandemic and the lockdown imposed to limits its potential reach, including term funding for banks and building societies to encourage lending and a £200bn increase in QE, plus the creation of the Covid Corporate Financing Facility (CCFF) for larger businesses and the Covid Business Interruption Loan scheme (CBILS) for smaller firms to get access to loans directly.
“The question that remains here is whether firms wish to take on additional liabilities – that will have to be paid back – when they have little or no visibility as to their income and may already have more borrowings than they would like,” said Russ Mould at AJ Bell.
He said it will be interesting to see what the BoE’s assessment is of its policy package, including how well banks are carrying out its wishes and whether any of the elements of it need to be dialled up or dialled down.
RBC Capital Markets predicted another £200bn of QE is on the way but might be held off until the next meeting on June 18.
Trainline updates as demand hits the buffers
Investors in Trainline PLC (LON:TRN) will be bracing for the group’s full-yearl results on Thursday after the rail and bus ticket seller slashed costs last month as the UK’s coronavirus lockdown measures caused a collapse in demand.
With business hitting the buffers, shareholders are likely to keep an eye out for any additional cost-cutting measures as well as any updates on the company’s liquidity position and the prospect of a fundraising.
Trainline was given some breathing room in this regard on April 29 after it agreed with its lenders to waive the covenant on a £350mln revolving credit facility until next August.
Checking in at Intercontinental Hotels
Similarly, investors in Intercontinental Hotels Group Plc (LON:IHG) are expecting news on the Holiday Inn owner's reopening schedule in Europe.
The FTSE 100-listed company said recently that its key revenues per available room (RevPAR) metric plunged by 55% in March. However, with most hotels in China now reopened and only one in 10 closed in the US, investors could hope for an improvement.
But hotels that are open are only around 20-25% full.
The market has been forgiving to the hospitality giant, with IHG shares rising nearly 50% since a dip to 2,161p dip in March, though they are still far away from the 5,120p hit in February.
Superdry to update on closures damage
Superdry PLC (LON:SDRY) is following up its March update with a trading announcement on Thursday.
The hoodie designer was quick in dropping guidance just as the coronavirus pandemic was unfolding in Europe, warning that online sales will not be enough to offset the losses made from shuttered walk-in stores.
The majority of the group's European estate, accounting for 40% of weekly sales, were already closed as of March 18.
At the time the UK and US sites, which represent 50% and 10% respectively of weekly sales, were still open but footfall had slumped by 25% week on week.
Investors are looking to hear on the group's trading performance and balance sheet developments – at the last update, the faux-Japanese clothier had £47mln in cash, a £70mln revolving credit facility and an overdraft facility of £20mln.
Thursday 7 May:
Bank of England interest rate decision
Trading updates: International Consolidated Airlines Group (LON:IAG), Superdry PLC (LON:SDRY), National Express Group PLC (LON:NEX), Intercontinental Hotels Group PLC (LON:IHG), Coca-Cola HBC AG (LON:CCH), Mondi PLC (LON:MNDI), TheWorks.co.uk PLC (LON:WRKS), RSA Insurance Group PLC (LON:RSA), Equiniti Group PLC (LON:EQN)
Finals: BT Group PLC (LON:BT.A), Trainline PLC (LON:TRN)
FTSE 100 ex-dividends to knock 0.79 points off the index: Polymetal International PLC (LON:POLY), Admiral Group PLC (LON:ADM)
AGMs: Barclays PLC (LON:BARC),
Economic data: US jobless claims