“In darts, players know that trebles are for show and doubles are for dough and the equivalent in investment is that adjusted profits are for show, but cash flow is the ultimate measure of dough and in BT’s case, the telco is not generating as much of it as shareholders would like.
On an adjusted basis, BT showed improved profits in the year to March 2023, and it has targeted further improvement in the coming twelve months. However, investors will be concerned to see that cash flow continues to shrink and debt continues to rise.
AJ Bell investment director Russ Mould said: “BT is fighting on several fronts, in the mobile, fixed-line and broadband arenas and even if the merger of BT Sport with Eurosport to create the TNT Sport joint-venture provides it with extra ammunition, it can be argued that the firm’s resources are spread pretty thin.
“Add ongoing regulatory scrutiny, a debt pile and a pension liability to fierce competition and BT looks boxed in. This may be why the shares trade no higher now than they did in early 1985, shortly after its privatisation by Margaret Thatcher’s Conservative government. Even if it found a way to generate serious increases in profits and cash flow, you would have to wonder whether those improvements would be regulated away in the face of political and public outcry.
“As it is, BT is competing in multiple arenas at once, all while helping the UK government to meet its targets for rolling out broadband across the nation. The need to invest across so many fronts, as well as pay interest on its debt, meet lease payments and top up the pension fund means BT only has so much cash in the pot with which to buttress and defend its competitive position. The tax break on Openreach’s fibre-to-the-premises is helpful here but cash flow is no higher now than when Philip Jansen took the helm from Gavin Patterson in 2019.”