Accounting scandal and regulatory pressure take toll on BT share price in 2017

Dividend concerns also weigh on former telecoms monopoly

Accounting scandal and regulatory pressure take toll on BT share price in 2017

Shares in BT Group (LON:BT.A) have had a tough year, with the company having faced several challenges, most notably an accounting scandal at its Italian division. Going forward, analysts have been divided on the telco’s prospects, while the company recently surprised investors with a deal with Sky (LON:SKY) which will see the two rivals sell their channels to each other’s platforms, lessening pressure related to the upcoming Premier League broadcast rights auction.

A tough year

BT’s share price is on track to post nearly a quarter of a loss for the current year, with investors selling off the stock after the former telecoms monopoly was forced to write down the value of its Italian business by £530 million following the discovery of inappropriate accounting behaviour at the unit. The scandal prompted Orange to sell about a third of its stake in the UK company, as it saw the value of its holding plunge immediately after the scandal.

BT further changed its auditor, picking KPMG to replace PricewaterhouseCoopers in the wake of the scandal, and filed a criminal complaint with Italian prosecutors.

The former telecoms monopoly has also encountered problems at home this year, amid regulatory pressure to give more independence to its network division Openreach. Last week, the government rejected the telco’s voluntary offer to improve broadband speeds, instead opting to make high-speed internet a legal right.

Dividend concerns

Yet, what seems to be the biggest worry for investors is the telco’s prized dividend, which is potentially seen coming under a threat. Morningstar recently quoted Old Mutual Global Investors’ chief exec Richard Buxton as commenting that he was bullish on UK equities and their dividends, with the exception of BT.

“I do not think BT’s dividend is sustainable, but we would probably buy the stock if it cut the pay-out,” he pointed out. Over the past months analysts including Jefferies and Morgan Stanley have also flagged worries over the telco’s dividends, while Moody’s has warned that BT was facing a £2-billion cash bill over the next two years to ease the concerns of its pension trustees. 

Others, however, been more upbeat, with UBS recently turning bullish on the shares, expecting more positive news-flow in the coming quarters. With major events, including more pension updates and the Premier League broadcast rights auction, on the cards next year, it remains to be seen whether BT will manage to successfully put 2017’s issues behind and assuage investor concerns over its prospects. 

As of 14:43 GMT, Friday, 22 December, BT Group plc share price is 274.10p.

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