BT Chief Executive Gavin Patterson to Step Down

Patterson's tenure has been mixed, Morningstar equity analysts argue, and the company's shares remain significantly undervalued

Allan C. Nichols 8 June, 2018 | 5:05PM
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BT Chief Executive Gavin Patterson

BT announced today that CEO Gavin Patterson will step down later this year and a search is on for his successor. This change has no impact on Morningstar equity analysts’ 360p share fair value estimate, or narrow moat rating.

We continue to believe the stock is significantly undervalued. At just over 200p, the company's shares rose after today's announcement. While we have not advocated for Patterson’s replacement, we aren’t sad to see him leave. In our opinion, Patterson’s tenure has been mixed.

We applaud his acquisition of EE, which created the only company in the United Kingdom that owns both fixed-line and mobile telephone networks. That said, the price paid was a bit rich, and what has frustrated us more is the slow integration of the two businesses. Only now, after more than 20 months, has BT finally rolled out a truly converged offering.

Likewise, we have been disappointed by BT's slow buildout of fibre broadband to the premises. Additionally, the Italian scandal came to light under Patterson’s watch. While the shenanigans in Italy likely started before his tenure, the lack of oversight is ultimately the CEO’s responsibility.

Finally, Patterson was the driving force behind BT’s big move into sports. Initially, we were sceptical as BT was giving the content away for free to broadband subscribers. Now that everyone is paying for the service and it has increased the firm’s broadband and pay TV subscriber bases, it may yet generate a decent return on capital. Thus, to us the jury is still out on whether this was a good decision.

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Allan C. Nichols  Allan C. Nichols