ii view: BT results follow dealmaker’s thumbs-up

Extending fibre broadband and 5G mobile, cutting costs, and with a forecast dividend yield of over 6%. Buy, sell, or hold? 

Third-quarter results to 31 December

• Revenue down 3% to £5.2 billion
• Adjusted profit (EBITDA) up 2% to £2 billion
• Net debt of £19.2 billion, up from £19 billion in the prior quarter

Chief executive Philip Jansen said:

"We've grown revenue and EBITDA on a pro forma, like-for-like basis, despite a challenging economic backdrop, and we're transforming BT Group for the benefit of our customers. We continue to accelerate our investments in the UK's leading next generation networks; we're combining our Enterprise and Global operations to create BT Business, a single, strengthened B2B unit."

ii round-up:

Telecoms giant BT Group (LSE:BT.A) today reiterated its full-year forecasts as both latest quarterly sales and adjusted profits arrived in line with City forecasts. 

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Management initiatives targeting £3 billion of annualised savings by the end of its 2025 financial year are being pursued, with broadband customer losses slowing to 10,000 during this latest third quarter. That was an improvement on the 89,000 loss in the prior second quarter. 

BT Group shares rose by more than 5% post the results, with the news following comments from existing shareholder and telecoms dealmaker Patrick Drahi earlier in the week that BT remains ‘undervalued.’ BT shares are down by around a third over the last year, similar to rival Vodafone Group (LSE:VOD). The FTSE 100 index is up by 3% over the last year.  

BT continues to expect annual revenue growth, with adjusted profit, or EBITDA forecast to rise by around £300 million year-over-year to £7.9 billion. 

Adjusted EBITDA for the third quarter to the end of December rose 2% to £2 billion despite revenues falling 3% to £5.2 billion. 

BT’s full fibre broadband now runs to 9.6 million premises, with almost a third of those now connected, while its 5G mobile network reaches three-fifths of the UK population.

Broker Morgan Stanley repeated its ‘overweight’ stance on the shares, highlighting BT as a ‘top pick.’

ii view:

BT operates across what is soon to become three divisions. Brands for its consumer division are made up of BT itself, EE and Plusnet. Its Openreach division manages its fixed network and physically connects homes and businesses across the UK. Both its Enterprise business connecting businesses and public sector organisations and its Global division managing IT infrastructure networks for companies in over 180 countries are to merge. 

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For investors, competition across the sector is intense, with rivals such as Comcast Corp Class A (NASDAQ:CMCSA) Sky, Virgin and Vodafone fighting hard to win custom. Fibre broadband and 5G investments costs are being swallowed, elevated costs generally such as energy provide a headwind, while group net debt of £19 billion compares to a stock market value of around £13 billion.  

More favourably, BT’s push to cut costs is ongoing, with its previous annualised target of £2.5 billion in late 2022 raised to £3 billion. Demand for its next generation products is said by management to be ‘strong’, with its 5G mobile customer base now standing at 8.5 million, while a share stake held by telecoms dealmaker Patrick Drahi continues to generate speculative interest. 

For now, and with the BT shares trading on a forecast dividend yield of over 6%, both income-focused investors and those comfortable with the higher degree are likely to stay put. 

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:

Strong hold