BT and Vodafone are hit by rising costs and debt: £10bn wiped off telecoms giants as investors rattled
Almost £10billion has been wiped off the value of BT and Vodafone as soaring costs and debt rattled investors.
Analysts are becoming increasingly sceptical about Britain’s two biggest telecoms companies after they reported lacklustre results this month. The pair are sitting on a £65billion debt pile – almost twice their combined value.
Investment bank Credit Suisse last week downgraded its rating on Vodafone. Activist investor Cevian Capital appears to be giving up on hopes the group can hasten its turnaround efforts – recently slashing its stake in the mobile giant.
Sell-off: Vodafone’s Nick Read has sold foreign interests to cut debt
Bosses Philip Jansen at BT and Nick Read at Vodafone have also come under fire as they try to turn around the companies’ fortunes.
Vodafone’s shares have tumbled 17 per cent this year while BT’s are down by a quarter.
They are struggling with many of the same problems, experts say.
Matt Britzman, an analyst at stockbroker Hargreaves Lansdown, said: ‘One of the shared troubles is costs, which have been rising dramatically over the year.’
Vodafone has hatched an £879million cost-cutting plan to tackle inflation and the spiralling price of energy to power its infrastructure. But this will still mean price rises for UK customers and job cuts.
A stumbling block has been its international business, particularly its largest market, Germany. ‘Both companies performed reasonably well in the UK,’ said telecoms expert Paolo Pescatore at PP Foresight looking at recent financial results. ‘But the challenges are in their overseas businesses.’
BT has also revealed plans to cut spending, a further £500million a year, taking the total to £3billion by the end of 2025. Britzman called it ‘a mammoth task’, saying markets needed convincing it was ‘possible without damaging the business’.
Both companies are wrestling with debt and rising interest rates, potentially adding further pressure. Vodafone’s debt is £45.5billion – almost double its £26billion market value. BT’s stands at £19billion. The firm is worth £13billion.
Both EE-owner BT and Vodafone are partly hamstrung by the need to pay hundreds of millions of pound a year to upgrade and add infrastructure while facing competition from smaller or cheaper rivals. Russ Mould at broker AJ Bell said: ‘Customers are quite willing to swap service providers to get a better deal. That is a difficult mix, especially as the debt does limit their room for manoeuvre at a time when interest rates are going up.’
Jansen has also been dubbed ‘Food Bank Phil’ by striking BT workers who criticised his 32 per cent pay rise to £3.5million a year while the group runs a food bank for staff.
Despite that, Pescatore said he believed ‘people will look back and think he’s done a reasonably good job’ as he grapples with costs, a big pension fund deficit and debts.
Indeed, French telecoms billionaire Patrick Drahi has built up an 18 per cent stake in the company.
Read recently agreed to sell half Vodafone’s Vantage Towers business in Germany to help cut debt.
But Pescatore said the ‘jury is out’ on his reign. Investor reaction to recent results supports his view.
BT shares are back where they were before it released its results on November 3, while Vodafone has slid 11 per cent since it issued figures on November 15.