ii view: BT gets nearer to cashflow boost

Third-quarter results to 31 December

• Revenue down 4% to £5 billion
• Adjusted profit (EBITDA) down 1% to £2.1 billion
• Net debt of £20.85 billion as of late September

Guidance:

• Continues to expect full-year revenues of £20 billion versus last year’s £20.36 billion
• Continues to expect full-year adjusted profit of £8.2-8.3 billion versus last year’s £8.2 billion
• Continues to expect full-year cash flows to be flat at around £1.5 billion
• Continues to expect cash flows to grow to £2 billion by 2027 and to £3 billion by end of the decade

Chief executive Allison Kirkby said:

"BT continues to deliver on its strategy - building and connecting the UK to the best next-generation networks at record pace, while accelerating our transformation. 

"Customer satisfaction reached an all-time high this quarter, and with our transformation building momentum, we are delivering ahead of plan.”

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ii round-up:

BT Group (LSE:BT.A) operates across four divisions. The Consumer division highlights itself as the UK’s largest provider of consumer mobile and fixed broadband communications services. It serves more than 25 million customers through its brands BT, EE and plusnet and via a network of over 400 UK high street stores and including EE Studio and Experience stores. 

The Business division connects more than one million companies and public sector organisations in the UK along with managing their IT infrastructure networks. 

The International division serves multinational business customers in providing communication and network services around the world.  

BT Openreach manages the group’s fixed networks including mobile phone masts and physically connects 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 5 February, please click here. 

ii view:

BT’s full fibre broadband network now passes 21.4 million premises, with 8.2 million customers, up 21% from a year ago, now using the service. BT continues to extend the fibre network with a target of 25 million premises by December 2026 and up to 30 million by 2030. BT’s older and slower copper network also continues to operate, although with customers being lost given continuing switches to alternative faster fibre networks. Customers for BT’s fast 5G mobile phone network hit 14.3 million during this latest quarter, a 10% increase from a year ago.  

Rivals include Vodafone Group (LSE:VOD), O2 owner Telefonica SA (XMAD:TEF), Comcast Corp Class A (NASDAQ:CMCSA) owned Sky and Gigaclear, principally owned by Infracapital, the infrastructure equity investment arm of M&G.

For investors, intense competition continues to see BT forecast line losses of 850,000 for the current year. A potential change of owner for TalkTalk could see its connections provided by BT going elsewhere. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while group net debt of £20.85 billion as of late December compares to a stock market value of around £20.4 billion.    

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More favourably, an expected drop in capital expenditure over the medium term as the fibre network build completes will boost group cashflows, increasing financial flexibility and potentially enabling a paying down of debt or an increase in the dividend, or both. Although volatile, growth in mobile customers and expected losses in full year broadband lines below forecast are not to be ignored. Energy usage down 6% and staff numbers 7% lower underline a focus on costs, with a push to use AI in customer services also expected to contribute, while a major share stake and seats on the board held by Indian conglomerate Bharti Enterprises adds speculative interest. 

In all, and while investment expenditure continues, the conclusion of a period of heavy spending and a forecast dividend yield of close to 4% are likely to see investors remain supportive.  

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:

Hold

ii's head of editorial Lee Wild owns BT shares