ii view: new BT boss optimistic about turnaround plan

Full-year results to 31 March

• Revenue up 1% to £20.79 billion
• Adjusted profit (EBITDA) up 2% to £8.1 billion
• Net debt up 3.7% to £19.5 billion
• Final dividend of 5.69p per share
• Total dividend for the year up 3.9% to 8p per share

Guidance:

• Target to more than double normalised free cash flow over the next five years
• Targeting further £3 billion of gross annualised cost savings by the end of the full year 2029

Chief executive Allison Kirkby said:

“BT Group built and connected customers to our next generation networks at record speed and efficiency over the past year, while continuing to grow revenue and EBITDA.

"As we move into the next phase of BT Group's transformation, we are sharpening our focus to be better for our customers and the country, by accelerating the modernisation of our operations, and by exploring options to optimise our global business.”

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ii round-up:

BT Group (LSE:BT.A) operates across three divisions. Its Consumer unit services more than 25 million mobile and fixed broadband customers through its brands BT, EE and Plusnet. 

Its Business division connects companies and public sector organisations, and manages IT infrastructure networks for them in both the UK and overseas. 

BT Openreach runs the group’s fixed networks including mobile phone masts and physically connecting 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 16 May, please click here. 

ii view:

Tracing its history back to 1846 and the Electric Telegraph Company, BT Group today employs over 90,000 people. Its Openreach division generated its biggest chunk of adjusted profits in this latest financial year at 47%, followed by Consumer at 33% and Business the balance of 20%. Group aims under its relatively new chief executive Allison Kirkby, the former head of Swedish telecoms company Telia Company AB (OMX:TELIA), include simplifying its products and services and completing the build and rollout of its full-fibre broadband and 5G networks.

Its fast fibre broadband now passes over 14 million UK premises with the initial build of a further 6 million underway and on track to reach 25 million by December 2026. Three-quarters of the UK population also now have access to BT's fast 5G mobile network.

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 fixed line copper wire losses, with 491,000 broadband customers gone this last fiscal year. Adjusted profit for the Business division fell 16% year-over-year as corporate customers continue to cut costs. Group costs like wages have also risen, a potential new government could change the regulatory goalposts, while BT’s net debt of £19.5 billion compares to a current stock market value of around £12.8 billion.  

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More favourably, it's likely we've seen peak expenditure on its faster network rollouts, so it's expected that free cash flows will improve. A further £3 billion of gross annualised cost savings by 2029 are now being pursued, with investments in artificial intelligence expected to eventually lower costs such as those for customer service. Options for its challenged Business division including partnerships overseas are being reviewed, a major share stake held by telecoms dealmaker Patrick Drahi adds speculative interest, while a forecast dividend yield in the region of 6% is attractive. 

In all, the targeted increase in free cashflow and  support for the dividend is far from guaranteed amid intense competition within the sector. However, with BT more than halfway through its fibre investments, increased financial flexibility looks to be in sight, with City opinion broadly optimistic and pointing to a consensus analyst fair value estimate above 190p per share.

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