Image source: BT Group plc
He BT (LSE:BT) The share price has had a tough week, as I think the youngsters like to say, after its long-term partner Sky announced it would be moving part of the business to one of the new fibre boys in the business.
The shares fell by 9% in a matter of hours, wiping out £1bn of market capitalisation. The share price now stands at 138p. The brief but sharp fall has softened what threatened to be a good year for the world's oldest communications company.
Did the market overreact on this one? Or is this a stock worth missing? Let's take a look.
Battle lines
The latest news is a sort of “broadband battle” centred squarely on BT’s Openreach service. Openreach is the company’s fibre division, tasked with rolling out ultra-fast fibre broadband and the fastest internet speeds available.
Fundamentally, this is an unsaturated market, with around half of UK households not having it installed. Growth is not easy for telecoms companies, so this is a key aspect of the business.
On the other side of the battle line are the “altnets” – smaller alternative fibre broadband providers – the Davids to BT’s Goliath. The largest of these altnets, CityFibre, has signed a deal with Sky to provide fibre to its customers. Not only does this threaten to steal business from BT, but fierce competition could squeeze margins and hit Openreach’s profits too.
I'll have to weigh in from my own experience, as I signed up with an alternative network recently after moving to a new location. I was a little nervous about signing up with a company I'd never heard of. Those concerns were quickly put to rest when the installation was arranged in one day, completed within an hour, and every time I needed to speak to someone on the phone, I didn't have to wait 45 minutes.
It didn't feel like the Britain of 2020 at all. If that's what the alternative networks are offering, then I fear for the big players who aren't. In other words, I can see these alternative networks eating BT's bread.
Buy for the dividend?
And if I'm not impressed by Openreach as a source of growth, then it's hard to see BT as anything other than a stable dividend stock. The company pays a yield of 5.92%, which to be fair is very high – the 13th highest payout ever. FTSE 100 IndexIf I were withdrawing money from my savings, I could imagine an annual return on that security and buy the shares.
However, since I have more time to play, I have to look at the growth side of the equation and the stock price has been trading sideways for decades.
It is somewhat incredible that I could have bought the stock in the 1980s and sold it today at a capital loss. All in all, it is not a stock that interests me, even after the fall in the share price.