BT Group (BT/A LN): Issues to consider
Background
For a rather pedestrian utility, BT group’s stock has been on a roller coaster. Up 154% between January 2012 and November 2015, despite largely unchanged revenues and cashflows, excluding deals. Since then, the combination of an Ofcom investigation, accounting issues and now the pension concern, the stock has fallen 38%. Having looked at the pension assumptions in detail as well as the on-going business, we wonder if management is skewing the accounting to suit themselves.
Issues to consider
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For a rather pedestrian utility, BT group’s stock has been on a roller coaster. Up 154% between January 2012 and November 2015, despite largely unchanged revenues and cashflows, excluding deals. Since then, the combination of an Ofcom investigation, accounting issues and now the pension concern, the stock has fallen 38%. Having looked at the pension assumptions in detail as well as the on-going business, we wonder if management is skewing the accounting to suit themselves.
Issues to consider
- Why was the pension discount rate, which has traditionally been high relative to the market, dropped to below the market rate this year?
- Why have the pension fund trustees not insisted that BT make greater contributions to the fund?
- When the company talks about the pension deficit, why do they always talk about the pre-tax (higher) number rather than the relevant (post-tax number)?
- When the compensation committee meets to assess option pricing and goals, will they measure their benchmarks against todays numbers or when the person was employed?
- How much will interest costs fall as and when the legacy high coupon bonds mature? What rates does the company expect to refinance at?
- Why did the company choose to pay out so much money to shareholders rather than fill the pension deficit?
- What is the company’s target payout ratio in 2-3 years time?
Please contact us, if you would like to become a client and get a full copy of the report.
Important
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.