Stocks in Focus: BT

This week BT has been issued with a fine of ￡42m by Ofcom, the largest penalty ever imposed by the regulator, as a result of their investigation into the installation of high speed business lines. In addition to the fine, BT will also pay out ￡300m compensation to corporate customers for the delays in the installation of the high speed lines, which provide connections for large businesses and organisations such as schools and hospitals.

The fine relates to Openreach, a wholly owned subsidiary of BT Group that is due to be legally separated from BT following ongoing pressure from Ofcom and industry rivals. Openreach provides the infrastructure to connect homes and businesses to exchanges via copper wire and fibre optic, working on behalf of service providers to maintain the local access network.

The start of year has already been difficult for BT following a profit warning that highlighted a slowdown in government business in the UK, the order by Ofcom to legally separate from its Openreach division, and an accounting scandal in its Italian operation. In addition to operational risks, BT still faces financial risks, with a vast pension deficit. 

Despite a tough couple of quarters, the company remains focussed on improving their entertainment packages. In addition it has become the largest mobile phone network in the UK last year following the ￡12.5bn acquisition of EE. Time will tell whether recent negative headlines are a sign of a struggling company or whether management’s determination to improve customer service and focus on entertainment can drive positive long term performance. Indeed, negative press can sometimes provide opportunities for investors, as long as the attractive long-term investment thesis remains fundamentally unchanged.

- NW Brown Investment Management

For more stocks in focus: https://www.nwbrown.co.uk/library