Hurrah, BT has seen the light. It has dropped the idea of forming a complicated joint venture to help fund the rollout of full-fibre broadband. That tentative proposal always smacked of a management obsessing about the short-term share price and fretting too much about possible takeover bids. Better to keep things simple by digging for Britain and getting the kit in ducts as quickly as possible.
The change of heart seems to have been prompted by the discovery that, when it concentrates on the job in hand, BT can take a chunk out of costs and thus finance the rollout to 25m premises by 2026 under its own steam. Average build costs have been cut by £50 to £250-£300 per premises, which is a serious saving. The capital expenditure splurge, which had been making investors nervous, will now peak at £4.8bn in 2023, rather than £5bn.
That’s a reassuring number for those shareholders who worry that fast-fibre riches are too distant to feel real. Spelling it out for them in hard numbers, the chief executive, Philip Jansen, promised “expansion of at least £1.5bn in normalised free cashflow” by the end of the decade compared to 2022.
The pitch, then, ought to be easy to understand: spend heavily for a few years, cement your leadership in a broadband market with monopolistic features and get rewarded later thanks to the “fair bet” terms secured with the regulator, Ofcom. Now that dividends are back, you also get paid to wait in the form of a 5% yield.
The complicating factor, potentially, is the presence of the French billionaire Patrick Drahi, whose Altice group bought a 12% stake in BT earlier this year. Drahi’s intentions remain unclear, but one can probably say this: a takeover bid that relied on cutting investment by removing hard-to-reach premises would be a non-starter, politically speaking. The new national security and investment act could almost have been drafted with BT in mind.
In any case, the best defence against a takeover bid is a healthy share price. On that score, Jansen’s more detailed financial projections prompted an 11% rise to 158p. There’s still a way to go to reclaim the 200p seen in the excitement after Drahi’s arrival, but the path looks clearer. Ignore distractions and hurry up with the fibre.
Metro shareholders might well be open to a sale
Metro Bank is the challenger bank that ended up challenging the wealth of its backers. Once upon a time – actually as recently as three years ago – shares in the would-be banking revolutionary traded as high as £40. After an amateurish misreporting scandal that prompted a (still unresolved) regulatory probe, a boardroom clear-out and a mammoth recapitalisation, they stand at 133p – and that’s after Thursday’s 29% pop on news of a bid interest from private equity firm Carlyle.
The motive behind Carlyle’s approach is unclear. The start of a wider adventure in consolidating the UK’s third-tier lenders? Or just an opportunistic attempt to grab Metro, and a loan book dominated by residential mortgages, at a moment when the chief executive, Dan Frumkin, may have stabilised the ship? The latter seems more likely and, with Metro worth just £230m, Carlyle would not be betting the farm.
After the accounting calamity of 2019, a takeover has been the most likely final chapter for Metro’s action-packed time on the London market. Frumkin’s turnaround plan is a multi-year affair. One suspects that Metro-weary, and mostly American, shareholders would accept a reasonable offer to sell. That assumes regulators would bless private equity ownership, which is not a given.
CMA’s Footasylum decision is baffling
The Competition and Markets Authority is adamant: Footasylum must be saved for the nation, or at least for its customers, who, it says, would probably “pay more for less choice, worse service and lower quality” if ownership by JD Sports were allowed to stand.
The £90m takeover happened as long ago as 2019, and this is the second time the CMA has run the numbers. So JD should probably give up trying to reverse the decision and do what the officials ask and sell the chain.
But the fury of the JD chief, Peter Cowgill, is fair. The ruling is baffling. Footasylum, at the point its board surrendered, was adding little competitive bite to the trainers and sportswear market – the company departed at half its flotation valuation of 2017. Meanwhile, the juggernaut is the direct-to-consumer operations of Nike and Adidas, which Footasylum looks more likely to withstand under JD’s protection.
But those arguments have got nowhere. Footasylum has about 70-odd stores, which is tiny in the context of the globally active JD. Let it go.