Shares climb as BT dials up return of dividend after tough 18 months for investors

It has been a gloomy 18 months for shareholders of BT – in particular more than 800,000 individual investors, who depend on dividends from the company to supplement their income.

The telecoms giant axed its pay-out in May last year in order to free up cash to spend on full-fibre roll-out and to meet the cost of restructuring.

Today, the dividend was reinstated, meaning investors can look forward to a pay-out of 2.31p-a-share on 7 February next year.

The move was one of a number of signals in BT’s half-year results pointing to growing confidence at the company.

Another was the revelation that BT has hit its annual £1bn cost savings target 18 months earlier than it was aiming for.

As a result, it is bringing forward the target for achieving £2bn of savings by 2025 by a year.

As Philip Jansen, BT’s chief executive, put it: “This is all part of creating a leaner BT with simplified processes and improved customer experiences.”

Adding to the upbeat tone was news that Openreach, the part of BT that runs the company’s digital network, has enjoyed a record six months and has now rolled out full fibre broadband to almost six million premises.

And with this came a crucial revelation.

At its full year results, in May this year, Mr Jansen indicated for the first time that BT would be prepared to team up with outside partners to hit a target of bringing full fibre broadband to 25 million premises by the end of 2026.

But the company said today that, after an extensive review and holding talks with prospective investors, it had decided not to proceed along these lines.

It said this was due to the cost of building fibre-to-the-premises coming down and because take-up had been ahead of expectations.

Mr Jansen told analysts today: “What you can read into this announcement is a very positive conclusion that says we will do it ourselves because the returns are very attractive for our shareholders.

“And also, we don’t want to, in any way, distract away from the progress we’re making on building and connecting people at the lowest possible cost.

“So I think it’s a real endorsement of our plan and we’re really happy with it.

“The good news is that we can afford to do it ourselves, we don’t need external finance.”

The decision is highly significant.

Bringing in an outside partner to take a stake in Openreach would have made it easier for the market to put a valuation on the business.

And that, in turn, might have added fuel to calls for BT to hive off Openreach as a separate entity.

This is something that the billionaire investor Patrick Drahi, who in June became BT’s biggest single shareholder, is expected to agitate for.

The decision also indicates that BT is serious about defending itself against a possible takeover bid from Mr Drahi

As Sky’s Mark Kleinman revealed last week, BT has bolstered its defences against a possible bid approach, signing the advisory firm Robey Warshaw to work alongside Goldman Sachs in this regard.

Robey Warshaw came to wider public awareness when, in February this year, it hired the former chancellor George Osborne.

Mr Jansen insisted today that neither this decision nor bringing forward its planned cost savings indicated that BT was expecting a move soon from Mr Drahi.

The tycoon, who owns 12.1% of BT, is forbidden under takeover rules from launching a bid for the company but that ban is lifted next month.

Mr Jansen added: “We’re not in the game of speculating. We’re just driving on with our agenda, which we know our shareholders really support.”

Given all these interesting developments it seems almost superfluous to mention that they came as BT reported a 5% drop in pre-tax profits, to £1.009bn, for the six months to the end of September.

That reflected weaker sales and earnings in its BT Global division, which provides security, cloud and networking services to businesses around the world.

But there was one line in the results that may well have caught the eye of Rishi Sunak, the chancellor, which is that BT’s effective tax rate during the most recent quarter has fallen to 15.3% compared with 18.22% for the April to June quarter this year and 19.9% for the whole of the last financial year.

Simon Lowth, the chief financial officer, said this reflected that BT was now expecting a larger proportion of its capital expenditure qualifying for Mr Sunak’s “super-deduction”.

This was announced in the chancellor’s March budget and offers companies tax relief of 130% on equipment purchases in the 2021-22 and 2022-23 tax years.

In the meantime, questions will be asked about BT’s ability to continue delivering on the cost-cutting front, particularly with energy costs and wages rising.

Mr Lowth said today that energy costs at BT, which traditionally has consumed 1% of the electricity on the UK grid, during the last year were around £500m.

On the wages issue, Mr Jansen said BT would be engaging in negotiations with its unions, ahead of an award being announced in April next year.

But he stressed that, with BT’s employees having received no pay increases during the last two years, the company would be raising pay next year.

He also reiterated that, although many businesses are experiencing higher inflation at the moment, around two-thirds of BT’s revenues are linked to inflation – protecting its profitability, to a degree, from rising costs.

Shares of BT, which had fallen by 31% from 23 June to the close last night, rallied by more than 9% this morning.

That may reflect the market cottoning onto the seriousness with which BT is treating a possible bid from Mr Drahi.

But just as likely is that it reflects some investors concluding that BT, which for many years has been the ultimate “jam tomorrow” stock, does finally look like coming up with the confiture.