Light at the end of the fibre
Who said: “We recognise there must be a compelling investment case. Shareholders and fund managers have plenty of choices over where to put their money”. Some broker with a fancy new issue to sell? A hedge fund playing hard to get? Actually, it’s Melanie Dawes, the UK’s telecoms regulator, at a conference earlier this month. Her “compelling case” refers to the ground rules Ofcom will propose next spring to BT for filling the nation’s culverts and poles with fibre optic cable.
The compelling investment case for BT in the past has always been to sell the shares. Four years ago they briefly touched £5, and they had rattled all the way down to £1 at the start of last month. Since then they have executed a sort of dead cat bounce to today’s 139p. The buyers must see a triumph of hope over experience, since the experience almost ever since they launched the privatisation party in 1984 has been one disappointment after another.
Nobody seriously doubts that wiring up the UK with optical fibre is a top priority, made even more urgent by this year’s revolution in how we work. There is also no realistic alternative to BT’s arms-length broadband subsidiary Openreach doing it. The difficulties start with the very long-term nature of the investment and the scope for price-gouging from a monopoly supplier. Ofcom’s current answer, to allow Openreach pricing freedom on fibre until 2031, has managed to upset the competition as well as BT itself, which argues that 11 years is not enough to make the estimated £12bn – not far short of BT’s current market value – rollout cost worth while.
One suggestion is to sell a minority stake in Openreach, which some analysts reckon is worth £20bn, and BT’s boss Philip Jansen has recently come round to considering the idea, having previously ruled it out. He’s in a hole dug by his predecessor, who thought BT could play footie with the big broadcasters while paying a “progressive” dividend. This version of cakeism has met the usual fate; the dividend has been cut off, while Covid has relegated the returns from football.
The other interference on the line goes back even further than that; the pension fund is in chronic deficit, thanks to the final-salary schemes inherited from the former state-owned business. A triennial review is due and is unlikely to make cheerful reading. A deficit of around £9bn is expected.
The interesting question is whether this misery is in the price. After all, BT ought to be an attractive business. Demand for increased speed of telecom connections has consistently exceeded forecasts in the past, even before getting another kick from Covid, so being the de facto monopoly supplier of high-speed broadband which also happens to own a leading mobile phone business in EE sounds like a winning combination.
BT’s problem under a series of dud chief executives has been to try and shake off the legacy of a former nationalised industry. Unless the company behaves like a proper commercial business, the future will look like the past. If Mr Jansen can get that message into his thousands of colleagues. then there is potential for a compelling investment case.
Railman says no to railway
Everyone knows that HS2 is the worst way to spend £100bn yet devised by a British government. Every assessment over the years has concluded that the line makes no sense financially. Covid offered a heaven-sent chance to pull the plug, and instead to give £5bn to each of the north’s 20 largest cities and towns to spend on any transport project they chose. This would have driven dramatic improvements where they are most needed, and cost the taxpayer less.
Even now, as the builders pillage their way through the Herfordshire countryside, it is not too late to cut it back. This week saw publication of the long-awaited National Infrastructure Commission review, which came to a similar conclusion. Even chairman John Armitt, the UK’s top railman, could not quite admit (on this occasion) what a waste of money HS2 is, but his estimate to complete the whole Y-shaped line to Manchester and Leeds is now £185bn, marking a new high-water mark in the cost of this vanity project.
Rather, he suggests not extending it to Leeds for a decade or two, instead spending the money on improvements which might, well, improve things. Leeds, after all, is already only two hours from London, and hardly needs to be any nearer.
Unfortunately, the Department of Transport, or “Department for Idiots” as Ryanair’s Michael O’Leary likes to call it, has long since stopped paying attention to criticism of HS2, since each secretary of state is merely doing what the boss tells him. The train marked value for money has long since left the station, however much Sir John might wish to stop it, and we shall all have to pay for the tickets.
Seasonal whine
If you can resist drinking them, fine wines are a fine investment. Who says so? Liv-Ex, compliers of an index which claims that a portfolio of the right stuff has out-performed most equity indices this year. Well, they are wine traders, after all. They traded more of the 2103 Barolo Monfortino Riserva than any other wine, and this sort of claim helps the prospects for next year.
But not only should you never actually drink the asset, you shouldn’t take delivery either, since a would-be buyer may worry that you have treated it badly. So you must pay someone else an annual fee to look after it. Not only that, there is more very similar stock being created every year. Should you come to sell, you may find that the £8,196 a bottle (Liv-Ex’s average price last year for the Barolo) conceals a rather larger spread between bid and offered than, say, a listed share.
This is a game for consenting adults only. The rest of us who feel that wine is for drinking might leave the “investing” to others and be grateful that bottles can go down as well as up.