Monthly Archives: February 2016

Stocks in Focus: BT

This week I am looking at BT, which announced its third quarter results and new corporate structure earlier this month.

Figures were reasonably strong across the board in the three months to the end of December 2015 and the company highlighted that this was its best revenue performance for more than seven years.  Furthermore, consumer line growth was the strongest it has been in over a decade and management are confident that they are on track with their goal of achieving sustainable revenue growth.

The 170-year-old company also took the opportunity to announce its new corporate structure following the completion of the £12.5 billion takeover of the mobile operator EE. The deal, which was given the go ahead by the Competition and Markets Authority, has created the UK’s biggest telecommunications company with over a third of the mobile market share. The new structure will include six lines of business: Consumer, EE, Business and Public Sector, Global Services, Wholesale and Ventures, and Openreach.

Looking forward, the reassuring results and new corporate structure should encourage management to focus more on innovation and the delivery of quality bundled services to clients. However, whilst the strategy to aggressively enter the mobile/quadplay market via the EE acquisition is credible, it does carry with it significant execution risk. On top of this there is also uncertainty surrounding BT’s infrastructure investment and the future of the Openreach division, which maintains and upgrades BT’s national broadband and phone network whilst ensuring that rival operators have equality of access to it. Specifically, the regulator (Ofcom) is due to rule shortly on whether Openreach needs to be structurally split out as a separate company.



Points of View: Lloyds share sale

This week I am focusing on Lloyds Banking Group, the UK’s biggest high street lender, following an announcement that the government’s sale of its remaining shares in the bank will be delayed.

The history of the government’s stake in Lloyds started in 2008, following its acquisition of HBOS and a subsequent taxpayer bailout that brought it back from the brink at the height of the financial crisis. Specifically, the then Labour government acquired a 43.4% stake in the bank at an average price of 73.6p per share. The shares had traded below this level until May 2013, at which time the Chancellor George Osborne signalled a plan to start selling the taxpayer’s stake. The first tranche was sold in September 2013 at a £60m profit; and since December 2014 further shares have been drip fed into the market such that today the public stake is approximately 9%.

This time around, Mr Osborne is planning to sell the final £2bn worth of shares, with several incentives to attract interest from retail investors. However, year to date Lloyds has been trading below the breakeven price and is close to a three-year low of 64p at the time of writing (i.e. a 13% loss). Mr Osborne has therefore announced the sale will be postponed – blaming market volatility – until “turbulent markets have calmed down”.

It could be several months before this volatility dissipates, and therefore some time before the public stake in Lloyds is exited in its entirety. However, it is reassuring to note that the government is monitoring the situation closely; and the 30 June deadline – which has already been extended by six months – is not set in stone, providing flexibility with regard to timings and thus reducing the risk of loss for UK taxpayers.

NEWS Our Views About Recent Market Volatility

Given the stock market correction since the start of the year we have drafted a note commenting specifically on this which is available to download below.

Our Views About Recent Market Volatility

I hope this gives an explanation for the recent volatility in the stock market but if you have any questions please do not hesitate to contact your usual adviser.