So what are we to make of ALL THIS? This seems to be another example whereby the current gloom in the equity markets means that any piece of negative newsflow leads to a massive over-reaction and a flood of short selling. We seem to be as "exuberant" on the downside as we were on the upside in the heady days of the bull market. Clearly, this profit warning is ill-timed and comes on the back of disappointing first-quarter results (35% drop in profits). And, for sure, BT will suffer from the coming winds of UK and European recession as businesses and consumers cut back on costs and switch providers.
BUT, BUT, BUT...
- BT is a vital part of the UK infrastructure
- Revenues are forecast to be ahead of expectations.
- The problem seems specific to the Global Services Division. All the company's other areas of operation performed as expected or slightly better.
- Action has been taken in the problem area in that Chief executive of BT Global Services has been replaced by Hanif Lalani, currently Group Finance Director.
- the new CEO, Ian Livingston, looks pretty kick-ass!
- It's paying an interim dividend of 5% - not even a fully years dividend!
- The business is hugely cash generative
Given the gloom in the markets, who knows what will happen in the short term but medium term, surely this stock is going to recover. BT's half-yearly results are due to be published on November 13.