BT takes recent rally past 30%
1st November 2018 10:21
by Richard Hunter from interactive investor
After recently breaking out of a three-year downtrend, BT shares are flying. Richard Hunter, head of markets at interactive investor, explains why.
BT Group has delivered a mixed bag in these half-year results as it continues to streamline what had become something of a lumbering giant.
The impressive 24% hike in pre-tax profit was largely driven by a reduction in operating costs, as opposed to revenues, which showed a 1.7% decline in the period.
This spirit of cost cutting has unfortunately extended to the dividend. Whilst an unwelcome surprise, it may be a prudent move given the 71% decline in net cash and should not take too much sheen off a dividend yield which previously stood at an attractive 6.4%.
Elsewhere, pockets of pressure remain. The regulated price reductions have had an impact on Openreach, capital has been strained by a £2 billion pension scheme contribution and fierce competition in BT's core markets is intensifying.
The Business and Wholesale units are having a tough time, whilst Global also reported a decline in adjusted revenue.
Source: TradingView Past performance is not a guide to future performance
All is certainly not lost, however. These measures show a company focused on changes which are long overdue, while the potential of the EE acquisition is becoming evident.
Indeed, the largest of BT's units by revenue, namely Consumer, has posted revenue gains which tempers some of the difficult decisions which are being taken. If this short-term pain delivers the required results, it will have been a worthwhile wait, even if the general view is currently divided on this issue.
In the meantime, full-year guidance on earnings has been nudged towards the upper end of estimates.
A new direction of travel may be beginning to emerge, and the initial share price reaction is one of extremely positive relief. This folds in to what had been a disappointing year for the shares, which had fallen 7.6% as compared to a 4.8% decline in the wider FTSE 100.
It may well be that future quarters provide further solace, but for the moment the jury is out on the market consensus, with BT continuing to come in at a 'hold', albeit a strong one.
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