The short answer, I think, to the question of whether the UK general election result will boost the BT share price is almost certainly yes. The election saw a decisive victory for the Conservative party and looks set to help BT (LSE: BT-A) shares, in the near future at least.
The major worry of the general election for BT was a commitment by Jeremy Corbyn and the Labour Party to nationalise the company’s broadband arm, Openreach. Needless to say this would not have been a good thing for shareholders, taking away one of BT’s most profitable business units. The election results of course put paid to this idea.
I previously argued, that despite the headlines this commitment was making, it seemed an unlikely scenario (mainly because Labour did not look likely to win). And after the results, it is almost unimaginable that a Conservative government would do anything similar. Or is it?
With a company such as BT, politics and government often have to go hand-in-hand with the financial prospects of the firm when considering it as an investment. Any previously nationalised industry in the UK tends to come under greater political (and press) scrutiny. It is still not out of the question that a Tory government could look to interfere as a potential vote-winner.
This may seem retrospective given that the Tories have already won, however this latest election saw large swathes of previous Labour voters move towards the Conservatives (thanks perhaps to the parties’ respective policies on Brexit). It is just possible a Tory government could make efforts to hold on to these voters in the future, and something like changes to broadband and connectivity could look good as a manifesto policy.
Tories are of course, traditionally believers in the free market, as is Boris Johnson himself, so we should perhaps not expect anything too dramatic for BT. However, this also means increasing competition, which is an area of trouble BT has come up against before.
As I said, for BT, the politics have to go hand-in-hand with the numbers, and on this front I think things could be looking up. Firstly, BT has always appealed as an income stock – currently offering a dividend yield of 7.5%. According to the latest estimates, this looks set to increase to a yield of over 8% in the New Year.
Normally this kind of yield sends up red flags for me, however in the case of BT, I believe this level is far more to do with its shares being oversold than the company paying out what it can’t afford.
I think 2020 will be a year when we really start to see the changes and cost-cutting efforts BT has been undertaking beginning to affect the bottom line. The company has been making headway with staff reductions – something that has been needed for years but previously impossible due to government tie-ups following its original privatisation.
Similarly, BT is no longer committed to performance-related bonuses, while its pension obligations (a major cause of its debt level) will continue to fall off as older employees are replaced by new (these new employees are under a different pension scheme than the old).
Personally, I think 2020 could be a good year for the BT share price.
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Karl owns shares of BT. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019