ii view: BT Group drives cost-saving initiatives

Third-quarter results to 31 December

• Revenue down 3% to £5.18 billion
• Adjusted profit (EBITDA) up 4% to £2.1 billion
• Pre-tax profit up 1% to £427 million
• Net debt of £20.3 billion as of 30 September 2024

Guidance:

• Expects this year’s £1.5 billion of cash flow to grow to £2 billion by 2027 and to £3 billion by the end of the decade

Chief executive Allison Kirkby said:

"Our ongoing modernisation continues at pace, delivering a further step-up in fibre build and take-up, customer satisfaction and EBITDA. Benefits from our cost transformation more than offset lower revenue outside the UK and weak handset sales.”

“Cost transformation remains firmly on track, with excellent progress on both energy costs and productivity in the quarter.”

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

ii round-up:

BT Group (LSE:BT.A) operates across three divisions. The Consumer division highlights itself as the UK’s largest provider of consumer mobile and fixed broadband communications services. It serves more than 25 million customers through its brands BT, EE and plusnet and via a network of over 400 UK high street stores.  

The Business division connects companies and public sector organisations along with managing IT infrastructure networks for them in both the UK and overseas. 

BT Openreach manages the group’s fixed networks including mobile phone masts and physically connects homes and businesses across the UK. It manages both the copper phone line network and is rolling out fast full-fibre broadband across the UK. 

For a round-up of these latest results announced on 30 January, please click here. 

ii view:

BT Group, a FTSE 100 company, competes with the likes of Vodafone Group (LSE:VOD), O2 owner Telefonica SA (XMAD:TEF), Comcast Corp Class A (NASDAQ:CMCSA) owned Sky, and Gigaclear, principally owned by Infracapital, the infrastructure equity investment arm of M&G. Openreach generated BT's biggest chunk of adjusted profits during this latest quarter at almost half, followed by Consumer at 31% and Business the balance of around 20%.

BT's aims under chief executive Allison Kirkby, the former head of Swedish telecoms company Telia, include simplifying its products and services and completing the build and rollout of its full-fibre broadband and 5G networks.

For investors, competition from the likes of Virgin and Gigaclear in areas of the UK where BT has not yet rolled out its fast broadband continues to see losses made on fixed line copper wire, with 208,000 line losses during this latest quarter – an increase from 181,000 in Q2. Pressured consumer spending hindered new mobile phone sales for the Consumer division during the period, leaving adjusted profit down 1% year-over-year at £655 million, while group net debt of £20.3 billion compares to a stock market valuation of around £14.8 billion.   

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• The Week Ahead: Lloyds Bank, HSBC, Standard Chartered, Glencore
• 10 shares to give you a £10,000 annual income in 2025

On the upside, a previous peak in capital expenditure on its faster network rollouts is expected to see free cash flow increase. A further £3 billion of gross annualised cost savings by 2029 are now being pursued, with investments in AI expected to eventually lower costs such as those for customer service. A major share stake held by Indian conglomerate Bharti Enterprises adds some speculative interest, while a forecast dividend yield of around 5.4% remains attractive. 

In all, and while intense industry competition cannot be ignored, a consensus analyst fair value estimate above 190p per share implies continued optimism in the City.  

Positives

• Expanding fibre broadband and 5G network
• Attractive dividend yield (Not guaranteed)

Negatives

• Intense industry competition
• Subject to regulatory rulings

The average rating of stock market analysts:

Buy