Interactive Investor

BT shares dive on results day to multi-month low

29th July 2021 13:08

Graeme Evans from interactive investor

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The telecoms giant rarely has much luck when it presents results, and this time was no different. We explain why.

The recent 200p purple patch for BT Group (LSE:BT.A) shares faded further from view today after rival Virgin Media contributed to the telecoms giant suffering yet more results-day blues.

The shares tumbled 8%, or 14.65p to 169.3p, a level last seen in May as otherwise encouraging first-quarter figures were tarnished by challenging conditions in the corporate-focused Global division, and by the threat of increased competition from Virgin Media O2.

The Liberty Global (NASDAQ:LBTYK) and Telefonica (XMAD:TEF) joint venture revealed today it intended to upgrade its 14.3 million cable premises to full fibre by 2028, leading to the potential opening up of opportunities in wholesale and other markets.

BT is “powering ahead” with its own ambitions to reach 25 million premises by the end of 2026, from the five million so far covered by its Openreach division. Analysts at Morgan Stanley said BT would have hoped to have taken market share in Virgin Media's traditional cable footprint, but that this now looked more challenging.

The other factor driving shares lower today was the performance of the Global division, which provides network and IT infrastructure services to multinational customers and accounts for about 15% of overall revenues.

The division reported a 28% slide in underlying earnings to £102 million for the June quarter, which is likely to reflect the impact of companies coming to terms with disruption to working patterns caused by the pandemic.

The pressure from these spending delays will continue in the current quarter, but BT chief Philip Jansen is optimistic there will be a market recovery in the second half of the year.

BT's other divisions grew earnings, with the consumer arm up 4% to £523 million as the easing of lockdown restrictions benefited BT Sport through the re-opening of pubs and clubs, while its retail stores are also back trading.

Overall earnings were 3% higher at £1.9 billion, with Jansen making no changes to full-year guidance this year or next due to expectations that trading conditions will continue to improve.

His optimism failed to prevent another quarterly results sell-off. In fact, Morgan Stanley noted that BT shares have only been up once on the day of the last 10 results presentations, with today's slide bringing the average fall to 5%.

The bank continues to have an ‘overweight’ rating on the stock, with a price target of 220p.

The shares were 205p last month amid intrigue over the 12% stake built by multi-billionaire telecoms dealmaker Patrick Drahi, and after favourable developments around super-deduction tax breaks, BT's triennial pension deficit and the 5G spectrum auction.

It was a far cry from November, when shares dipped below 100p after Jansen axed the dividend and rebased expectations despite the working-from-home trends created by the pandemic. Guidance for 2021/22 points to a resumption of the dividend at an annual rate of 7.7p a share.

The subsequent rebound to above 200p came as a welcomed relief for long-suffering retail investors, although not all City analysts were convinced by the recovery.

As we reported in early June, Deutsche Bank's Robert Grindle said the rise to 180p looked to be “overcooked” as he noted the potential for increased competition from BT's fixed infrastructure rivals as the likes of Virgin Media O2 target fixed-mobile convergence.

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