ii view: BT fibre network expands, but Covid is hurting

Shares are down by a fifth over the last year but can investments in fibre and 5G reignite growth?

Third-quarter results to 31 December

• Revenue down 5% to £5.47 billion
• Adjusted profit (EBITDA) down 5% to £1.88 billion
• Dividend payment previously suspended
• Net debt down 5% year-over-year to £17.3 billion

Guidance:

• Still expects full-year adjusted profit of between £7.3 to £7.5 billion
• Continues to forecast full-year 2022/23 adjusted profit of £7.9 billion  

Chief executive Philip Jansen said:

"During the current Covid-19 pandemic, BT has continued to deliver for our customers and invest in our networks, our modernisation programme, and our products and services in recognition of the ever-increasing need for improved and faster connectivity. 

"The latest proposals from Ofcom are positive for investment in many areas, but there are key points of clarity still needed to unlock the fibre investment the country needs; and we still need to see concrete progress from Government on the things they can do to support the fibre roll out.

"Looking further ahead our new Digital unit will enable us to accelerate our digital and business transformation programmes and to deliver digital platforms that bring together best-in-class services for our customers, further securing a brighter and more sustainable future for the group."

ii round-up:

Broadband and mobile phone network operator BT Group (LSE:BT.A) said today it remains on track to deliver profits in line with its previous forecasts. 

Third-quarter revenue and adjusted profit both fell by 5% given the ongoing dampening impact of the pandemic, but fractionally exceeded City forecasts. 

BT shares drifted lower in UK stock market trading, leaving them down by around a fifth over the last year. Shares for rival TalkTalk Telecom (LSE:TALK) are down by a similar amount, while Vodafone (LSE:VOD) shares have fallen by around 10%.

BT management continues to expect adjusted profit for the current full year to the end of March of between £7.3 to £7.5 billion. That's a range it previously upgraded to, although it's still down from 2019’s £7.9 billion.

Accompany outlook comments for its enterprise or businesses division pointed to an expected last quarter impact from the virus due to likely insolvencies, particularly within its small to medium enterprise customers. Similarly, at its consumer business, ongoing lockdowns are expected to further curb trading performance with almost all retail, pub and club outlets closed.

More favourably, its EE 5G mobile network is now operational in 125 locations and its fibre broadband has now passed over 4 million premises, leaving it on track to meet March 2021 targets. 

A new technology or digital unit has been established in order to progress the group’s digital innovation agenda, and sales have been agreed for selected business units in Italy. 

ii view:

BT Group provides and sells communications products and services to consumers, small and medium sized enterprises and the public sector. It operates across the four divisions of consumer, enterprise, global and Openreach. Its three consumer division brands are BT itself, EE and Plusnet, while its enterprise business connects over businesses and public sector organisations. The global division manages IT infrastructure networks for companies in over 150 countries. Its Openreach division physically connects homes and businesses across the UK.   

Disrupted trading during the pandemic proved the last straw when added to the huge expenditure of rolling out its fast fibre network nationwide by 2025, and upgrading its mobile phone network to 5G. That was on top of already high debt. As such, a decision was taken to not pay a dividend this current financial year and halve the planned dividend for the coming financial year. Giving opportunity to funnel saved cash into required investment. 

For investors, the dividend decision was clearly a major blow. BT’s cash generating qualities have over the years made it appealing to income seeking investors. Rulings by industry regulator Ofcom and the willingness of the government to assist also need to be considered. But the prioritisation of investment over dividend payments could yet prove sensible over the long term. For now, while clear assessment continues to be blurred by the hinderance of the virus, BT will likely remain of interest to investors with a long-term investment horizon.

Positives

• Government previously pledged £5 billion to assist fast broadband roll-out
• Government changed its 2025 gigabit coverage target from all of the UK to 85% of the UK

Negatives

• Dividend payment suspended
• £600 million class action claim alleging anti-competitive behaviour

The average rating of stock market analysts:

Buy