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BT shares plunge 19% as Italian accounting scandal deepens – business live BT shares plunge 20% as Italian accounting scandal deepens – business live
(about 1 hour later)
5.39pm GMT
17:39
Almost £8bn wiped off BT shares after scandal
It’s been a day to forget for BT, its executives and of course its army of small shareholders. Around 700,000 people own less than 1,600 shares, a legacy of the telecoms group’s privatisation in 1984.
And they as much as anyone will be shocked by the 20% plunge in the company’s shares after it revealed a worse than expected hit to its figures from an accounting scandal in Italy, not to mention a warning of a slowdown in business elsewhere.
Some £8bn was wiped off the value of BT as its shares fell from 382.55p to 303p, its lowest level since June 2013.
That in turn knocked 26 points off the FTSE 100, which would otherwise have been firmly in positive territory rather than slipping slightly into the red.
So where now for BT shares? Neil Wilson, senior market analyst at ETX Capital, said:
BT’s 20% drop today fairly rattled the City. It was one of the biggest ever single-day falls for a company of this sort. Blue chips like BT just don’t make those kinds of losses on one announcement about a part of the business that accounts for just 1% of earnings.
So is this a golden buying opportunity for investors, or does BT merit a fundamental recalibration of its stock price based on the news?
First, the upside. BT is now looking very cheap on a price to forward earnings ratio (about 10 times). That appears like mightily good value for a company that pays juicy dividends and says it will continue to increase these by 10% a year over the next two years. That could mean a roughly 4% yield for buyers entering now, which if it can manage to deliver is a pretty attractive return.
It’s also dodged a bullet or two by retaining control of Openreach, the jewel in the crown, despite pressure from Ofcom. The acquisition of EE enables to become a genuine quad-play provider. Sports broadcasting is also improving revenues but at a fairly hefty cost.
The downside, however, looks ominous. The Italian fiasco will gobble up a whopping £500m in free cash in 2016/2017 and a further £500m in 2017/18. Although BT has largely completed its investigation, there is a risk that this could blow up further and it’s wise to be cautious. The Financial Reporting Council could take this further.
Operating costs seem to be rising, as are debts. Acquisition of EE, while a strategic long-term play, has meant net debts have risen to nearly £10bn. That is also the figure for BT’s pension black hole, which it has to review this year.
Another red flag is the outlook for UK public sector and international corporate markets, which BT says has deteriorated, meaning it expects a double-digit year-on-year percentage decline in fourth quarter underlying EBITDA adjusted for the acquisition of EE. That is a big concern and signals that investment is drying up. All this points to growing pressure on free cash, which BT needs to keep growing the dividends.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
5.10pm GMT
17:10
European markets end higher but FTSE 100 hit by BT fall
There is a degree of caution around the markets, as investors await more decisions from US president Donald Trump after his protectionist rhetoric so far. And with the US reporting season underway, they are also looking to see whether companies can justify their hefty valuations with their results.
Overall, with Wall Street higher by the time Europe closed - with the Dow Jones Industrial Average up 61 points or 0.3% - continental markets ended the day higher.
News that the UK parliament had won the right to a vote on Brexit did little to support the pound, which is currently unchanged at $1.2530 having earlier fallen as low as $1.2419. Jasper Lawler, senior market analyst at London Capital Group, said:
The [UK supreme] court ruling sent the British pound lower, though it finished well off its lows. There was an element of ‘buy the rumour, sell the fact’ in currency markets to the well-telegraphed decision. In all likelihood Article 50 will still be triggered in March irrespective of the supreme court. In many ways this is just one less roadblock out of the way before the UK leaves the EU. If anything, the net effect leans towards a harder Brexit in that Scotland and the devolved assemblies, which mostly voted to Remain in the EU, will have less say.
So with the pound failing to gain ground, the FTSE 100 was open to reacting to any shocks, and an unexpected profit warning from BT after worse than expected accounting irregularities in Italy certainly fitted the bill. BT’s decline knocked 26 points off the leading index, which otherwise would have been well in positive territory. The final scores in Europe showed:
The FTSE 100 dipped 0.84 points or 0.01% to 7150.34
Germany’s Dax added 0.43% to 11,594.94
France’s Cac closed up 0.18% at 4830.03
Italy’s FTSE MIB finished up 0.89% at 19,499.54
Spain’s Ibex ended up 0.89% at 9387.2
In Greece, the Athens market added 1.13% to 646.51
4.16pm GMT4.16pm GMT
16:1616:16
Back with BT, and Reuters is reporting that Italian prosecutors are opening their own investigation into alleged false accounting and embezzlement at BT Italia.Back with BT, and Reuters is reporting that Italian prosecutors are opening their own investigation into alleged false accounting and embezzlement at BT Italia.
Meanwhile a number of US law firms which specialise in shareholder class action cases say they are looking at whether BT violated federal securities laws.Meanwhile a number of US law firms which specialise in shareholder class action cases say they are looking at whether BT violated federal securities laws.
UpdatedUpdated
at 4.24pm GMTat 4.24pm GMT
3.13pm GMT3.13pm GMT
15:1315:13
US home sales fall in DecemberUS home sales fall in December
But existing home sales in the US fell by more than expected in December, as the supply of houses on the market dropped to levels not seen since 1999.But existing home sales in the US fell by more than expected in December, as the supply of houses on the market dropped to levels not seen since 1999.
The National Association of Realtors said existing home sales fell 2.8% to a seasonally adjusted annual rate of 5.49m units, compared to forecasts of a 1.1% decline to 5.52m. But overall sales for 2016 rose to 5.45m, the highest since 2006, from 5.25m the previous year. Lawrence Yun, the association’s chief economist, said the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note:The National Association of Realtors said existing home sales fell 2.8% to a seasonally adjusted annual rate of 5.49m units, compared to forecasts of a 1.1% decline to 5.52m. But overall sales for 2016 rose to 5.45m, the highest since 2006, from 5.25m the previous year. Lawrence Yun, the association’s chief economist, said the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note:
Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market. However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market. However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.
While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.
3.04pm GMT3.04pm GMT
15:0415:04
Better than forecast US manufacturing data adds to rate rise expectationsBetter than forecast US manufacturing data adds to rate rise expectations
US manufacturing has got off to a good start in 2017, with overall conditions improving at the quickest pace for two years.US manufacturing has got off to a good start in 2017, with overall conditions improving at the quickest pace for two years.
The initial Markit manufacturing purchasing managers index for January came in at 55.1, compared to expectations of a figure of 54.5 and a rise from December’s final figure of 54.3. Chris Williamson, Chief Business Economist at IHS Markit said:The initial Markit manufacturing purchasing managers index for January came in at 55.1, compared to expectations of a figure of 54.5 and a rise from December’s final figure of 54.3. Chris Williamson, Chief Business Economist at IHS Markit said:
US manufacturers are seeing a bumper start to 2017, with production surging higher in January on the back of rising inflows of new orders.US manufacturers are seeing a bumper start to 2017, with production surging higher in January on the back of rising inflows of new orders.
New work is growing at the fastest rate for over two years, thanks mainly to rising demand from customers in the home market. Export growth remains subdued, stymied by the strong dollar.New work is growing at the fastest rate for over two years, thanks mainly to rising demand from customers in the home market. Export growth remains subdued, stymied by the strong dollar.
The survey results suggest that faster manufacturing growth and inventory rebuilding should help boost GDP in the first quarter if current trends persist in coming months. Rising factory employment should also help improve consumer morale and spending.The survey results suggest that faster manufacturing growth and inventory rebuilding should help boost GDP in the first quarter if current trends persist in coming months. Rising factory employment should also help improve consumer morale and spending.
However, with such strong growth being signalled and price pressures rising, speculation around the next Fed rate hike will intensify.However, with such strong growth being signalled and price pressures rising, speculation around the next Fed rate hike will intensify.
UpdatedUpdated
at 3.06pm GMTat 3.06pm GMT
2.53pm GMT2.53pm GMT
14:5314:53
Wall Street struggles into positive territoryWall Street struggles into positive territory
With US investors awaiting more details of President Donald Trump’s tax and spending plans, the main impetus for the market has been his protectionist stance on trade, including pulling out of the Trans-Pacific Partnership.With US investors awaiting more details of President Donald Trump’s tax and spending plans, the main impetus for the market has been his protectionist stance on trade, including pulling out of the Trans-Pacific Partnership.
So Wall Street is currently searching for direction, as the US reporting season gathers pace. The Dow Jones Industrial Average is up 13 points or 0.07% while the S&P 500 and Nasdaq Composite both opened marginally higher.So Wall Street is currently searching for direction, as the US reporting season gathers pace. The Dow Jones Industrial Average is up 13 points or 0.07% while the S&P 500 and Nasdaq Composite both opened marginally higher.
2.19pm GMT2.19pm GMT
14:1914:19
Shares in broadcaster ITV have jumped by over 5% today, on speculation that a bid battle could be coming.Shares in broadcaster ITV have jumped by over 5% today, on speculation that a bid battle could be coming.
The rally sparked by the Evening Standard’s Jamie Nimmo, who reported that several US companies are interested....The rally sparked by the Evening Standard’s Jamie Nimmo, who reported that several US companies are interested....
He writes:He writes:
Chatter in the Square Mile that Liberty Global could buy out ITV is nothing new, but rumour has it that the Virgin Media owner may face competition from some of the world’s largest companies.Chatter in the Square Mile that Liberty Global could buy out ITV is nothing new, but rumour has it that the Virgin Media owner may face competition from some of the world’s largest companies.
The word on the street is that major shareholders of ITV have been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover.The word on the street is that major shareholders of ITV have been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover.
They are thought to have been enticed by the cheap pound and ITV’s production arm — behind shows such as Mr Selfridge and which has been growing over the past few years through acquisitions.They are thought to have been enticed by the cheap pound and ITV’s production arm — behind shows such as Mr Selfridge and which has been growing over the past few years through acquisitions.
The gossip suggests the US giants are willing to pay 300p a share, valuing ITV at around £12 billion.The gossip suggests the US giants are willing to pay 300p a share, valuing ITV at around £12 billion.
More here:More here:
Market report: Buzz as US suitors rumoured to be eying ITV takeover https://t.co/GBz7on1UHMMarket report: Buzz as US suitors rumoured to be eying ITV takeover https://t.co/GBz7on1UHM
ITV’s shares are currently changing hands at around 210p - a long way from 300p, suggesting the City isn’t convinced a bid is coming. One to watch though....ITV’s shares are currently changing hands at around 210p - a long way from 300p, suggesting the City isn’t convinced a bid is coming. One to watch though....
2.05pm GMT2.05pm GMT
14:0514:05
Microsoft 'reaffirms' commitment to UK amid Brexit fearsMicrosoft 'reaffirms' commitment to UK amid Brexit fears
Software giant Microsoft has just released a statement, insisting that it remains committed to the UK following reports that Brexit might disrupt its operations.Software giant Microsoft has just released a statement, insisting that it remains committed to the UK following reports that Brexit might disrupt its operations.
The company says:The company says:
The comments reported today by a Microsoft employee were not reflective of the company’s view. As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged. In particular, those customers in our UK data centres should continue to rely on Microsoft’s significant investment plans there.The comments reported today by a Microsoft employee were not reflective of the company’s view. As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged. In particular, those customers in our UK data centres should continue to rely on Microsoft’s significant investment plans there.
Which employee, I hear you cry...Which employee, I hear you cry...
...well, it’s Microsoft’s UK government affairs manager Owen Larter. Yesterday, he told a webinar that importing hardware to the UK could become too pricey, if tariffs were imposed after Britain leave the EU....well, it’s Microsoft’s UK government affairs manager Owen Larter. Yesterday, he told a webinar that importing hardware to the UK could become too pricey, if tariffs were imposed after Britain leave the EU.
Larter said:Larter said:
“If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries.”“If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries.”
TechRepublic has the full story.TechRepublic has the full story.
1.41pm GMT1.41pm GMT
13:4113:41
Brexit pushes sterling downBrexit pushes sterling down
The pound is falling further as the UK government pushes on with its Brexit plans following today’s supreme court ruling.The pound is falling further as the UK government pushes on with its Brexit plans following today’s supreme court ruling.
Sterling is currently down 0.5% at $1.246. having hit $1.253 earlier in the day.Sterling is currently down 0.5% at $1.246. having hit $1.253 earlier in the day.
It fell as Brexit secretary David Davis told MPs that a bill seeking permission to trigger Article 50 will be introduced within days.It fell as Brexit secretary David Davis told MPs that a bill seeking permission to trigger Article 50 will be introduced within days.
FXTM research analyst Lukman Otunuga says ‘hard Brexit fears’ have been fuelled by the judges’ ruling that the devolved administrations needn’t give their approval for Article 50 to be triggered.FXTM research analyst Lukman Otunuga says ‘hard Brexit fears’ have been fuelled by the judges’ ruling that the devolved administrations needn’t give their approval for Article 50 to be triggered.
Although today’s ruling has provided some clarity in the short term on the steps needed for Brexit to happen; the pending Brexit fuelled debates with the Parliament and potential complications could create a new layer of uncertainty consequently weakening the Pound.Although today’s ruling has provided some clarity in the short term on the steps needed for Brexit to happen; the pending Brexit fuelled debates with the Parliament and potential complications could create a new layer of uncertainty consequently weakening the Pound.
12.25pm GMT12.25pm GMT
12:2512:25
Breaking: UK bank HSBC has announced plans to shut 62 branches across the UK.Breaking: UK bank HSBC has announced plans to shut 62 branches across the UK.
The move will cost 180 jobs, and is part of the bank’s cost-cutting programme.The move will cost 180 jobs, and is part of the bank’s cost-cutting programme.
With more customers using electronic banking services, HSBC argues that it needs fewer physical branches.With more customers using electronic banking services, HSBC argues that it needs fewer physical branches.
The BBC’s Simon Gompertz has got hold of a list; it includes branches in Blackpool, Chipping Norton, Newquay and Warwick.The BBC’s Simon Gompertz has got hold of a list; it includes branches in Blackpool, Chipping Norton, Newquay and Warwick.
Here's the list of the 62 new HSBC branch closures https://t.co/cnp2STK11vHere's the list of the 62 new HSBC branch closures https://t.co/cnp2STK11v
11.56am GMT11.56am GMT
11:5611:56
Today’s tumble makes BT’s shares rather more attractive to investors on a price/earnings basis.Today’s tumble makes BT’s shares rather more attractive to investors on a price/earnings basis.
The company still expects to grow its dividend by 10% per share this financial year, and in 2017-18.The company still expects to grow its dividend by 10% per share this financial year, and in 2017-18.
But the Italian accountancy scandal, and the warning that BT’s UK’s public sector business is slowing, are reasons to be cautious.But the Italian accountancy scandal, and the warning that BT’s UK’s public sector business is slowing, are reasons to be cautious.
Chris Beauchamp of IG says:Chris Beauchamp of IG says:
At ten times forward earnings, the shares are now the cheapest they have been since early 2013, but the fundamental case for investing, aside from the dividend, has still to be proved.At ten times forward earnings, the shares are now the cheapest they have been since early 2013, but the fundamental case for investing, aside from the dividend, has still to be proved.
11.23am GMT11.23am GMT
11:2311:23
Here’s Nick Fletcher’s news story on BT’s Italian problems:Here’s Nick Fletcher’s news story on BT’s Italian problems:
11.15am GMT11.15am GMT
11:1511:15
BBC: BT's European head to resign todayBBC: BT's European head to resign today
The BBC’s Simon Jack is reporting that the head of BT’s Continental Europe division, Corrado Sciolla, will resign today.The BBC’s Simon Jack is reporting that the head of BT’s Continental Europe division, Corrado Sciolla, will resign today.
Head of BT Europe, Corrado Sciolla will resign this pm over 530m accounting scandal at BT Italy. Serious internal & ext auditing errorsHead of BT Europe, Corrado Sciolla will resign this pm over 530m accounting scandal at BT Italy. Serious internal & ext auditing errors
Sciolla is a former boss of BT Italy, who was promoted to become president of Continental Europe four years ago.Sciolla is a former boss of BT Italy, who was promoted to become president of Continental Europe four years ago.
Here’s his biography, from BT’s website:Here’s his biography, from BT’s website:
Corrado is responsible for making sure we grow quickly and profitably across Europe - where we serve big brands like Fiat, ENI, Syngenta and The European Parliament.Corrado is responsible for making sure we grow quickly and profitably across Europe - where we serve big brands like Fiat, ENI, Syngenta and The European Parliament.
Corrado’s career started as a McKinsey consultant, then he had various directorships at Stream (an Italian pay-TV firm), Syntek Capital, and Wind Telecomunicazioni (Italy’s second-biggest fixed and mobile telecoms operator).Corrado’s career started as a McKinsey consultant, then he had various directorships at Stream (an Italian pay-TV firm), Syntek Capital, and Wind Telecomunicazioni (Italy’s second-biggest fixed and mobile telecoms operator).
In 2004, he became managing director of Albacom, a joint venture between BNL and BT. When BT bought Albacom outright in 2006, he became CEO of BT Italy and – in 2011 – president of BT France as well.In 2004, he became managing director of Albacom, a joint venture between BNL and BT. When BT bought Albacom outright in 2006, he became CEO of BT Italy and – in 2011 – president of BT France as well.
Corrado is Italian. He has an electronic engineering degree from the Polytechnic University of Turin and an MBA from the INSEAD business school.Corrado is Italian. He has an electronic engineering degree from the Polytechnic University of Turin and an MBA from the INSEAD business school.
Exclusive. Head of BT Europe to go. Corrado Sciolla most senior head to roll over BT accounting scandal. full story https://t.co/8Ts9Ig84hhExclusive. Head of BT Europe to go. Corrado Sciolla most senior head to roll over BT accounting scandal. full story https://t.co/8Ts9Ig84hh
UpdatedUpdated
at 11.16am GMTat 11.16am GMT
10.55am GMT10.55am GMT
10:5510:55
There’s no respite for BT’s share price this morning; it’s still down almost 18% at 314p, which knocks over £6bn off its value.There’s no respite for BT’s share price this morning; it’s still down almost 18% at 314p, which knocks over £6bn off its value.
The accounting scandal in Italy (details), and the news that BT’s UK business is slowing too, are alarming the City.The accounting scandal in Italy (details), and the news that BT’s UK business is slowing too, are alarming the City.
George Salmon, equity analyst at Hargreaves Lansdown, says there were already concerns about BT’s debt and its pension black hole:George Salmon, equity analyst at Hargreaves Lansdown, says there were already concerns about BT’s debt and its pension black hole:
“The revelation that accounting deficiencies in Italy are worse than previously thought is a bitter, and needless to say unwelcome, pill to swallow for BT investors. With news that its Business and Public Sector division is coming under pressure too, worries about the group’s ability to fund its generous dividend policy will surely grow.“The revelation that accounting deficiencies in Italy are worse than previously thought is a bitter, and needless to say unwelcome, pill to swallow for BT investors. With news that its Business and Public Sector division is coming under pressure too, worries about the group’s ability to fund its generous dividend policy will surely grow.
Full year profits are now expected to be around £300m lower than had been hoped, with around £500m of 2016/17 free cash flow disappearing. Just about the only guidance that was left unchanged is the dividend, where the group is still targeting at least 10% increases this year and next.Full year profits are now expected to be around £300m lower than had been hoped, with around £500m of 2016/17 free cash flow disappearing. Just about the only guidance that was left unchanged is the dividend, where the group is still targeting at least 10% increases this year and next.
With the group’s net debts pushing £9.6bn following the acquisition of EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock so this was the last thing the group needed.”With the group’s net debts pushing £9.6bn following the acquisition of EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock so this was the last thing the group needed.”