ii view: BT ramps up spending on fibre rollout

Full-year results to 31 March

• Revenue down 2% to £20.36 billion
• Adjusted profit (EBITDA) up 1% to £8.2 billion
• Final dividend of 5.76p per share
• Total dividend up 2% to 8.16p per share
• Net debt up 2% to £19.8 billion

Guidance:

• Continues to expect cash flows to grow to £2 billion by 2027 and to £3 billion by the end of the decade

Chief executive Allison Kirkby said:

"BT Group delivered strong progress against its strategic priorities in FY25, as we stepped up the pace of build of the UK's leading next generation networks.

“With the leadership team now in place to take our strategy forward, I am confident that as we build and connect at pace, our transformation will accelerate and deliver a better BT for all of us - our customers, our colleagues, the country and our owners."

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ii round-up:

BT Group (LSE:BT.A) today detailed revenues and profits that matched City forecasts, but with the communications giant increasing spending on the rollout of its UK fibre broadband network.

Reduced international and handsets sales left annual revenue down 2% at £20.36 billion, but with strong cost control helping adjusted profit (EBITDA) rise by 1% to £8.2 billion. Increased cashflows to £1.6 billion supported a final dividend of 5.76p per share payable to eligible shareholders on 10 September. That takes the total payment for the year up 2% to 8.16p per share. 

Fourth-quarter broadband customer losses increased to 243,000 from the prior quarter’s loss of 208,000. Analysts had expected a fall of 202,000. BT now plans to spend £5 billion on extending its fibre broadband network over the year ahead, up from £4.85 billion and above City forecasts of £4.9 billion. 

Shares in the FTSE 100 company were little changed in late morning UK trading having come into these latest results up by close to a third over the last year. That’s comfortably ahead of a 4% gain for the FTSE 100 index itself. Rival Vodafone Group (LSE:VOD) is up 4% over that time. 

BT operates across the three divisions of Consumer, Business and Openreach, with the latter managing its networks including mobile phone masts and physically connecting homes and businesses across the UK.

BT’s full fibre broadband network now passes more than 18 million homes and businesses, with more than 6.5 million already now customers. BT is working to extend that to 25-30 million premises by the end of the decade. 

Group cashflows are expected to remain flat for the year ahead at around £1.5 billion but increase to £2 billion by 2027 and £3 billion by the end of the decade, as investment expenditure on fibre rollout potentially falls by more than £1 billion from 2026 onwards.  

BT predicts growth in adjusted profit for the year ahead to £8.3 billion from £8.2 billion this year. Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results.    

First-quarter results are scheduled for 24 July. 

ii view:

BT brands include EE and Plusnet. Openreach generated the company’s biggest chunk of adjusted profit during this latest financial year at almost half, followed by the Consumer division at close to a third and Business the balance of almost a fifth. Competitors include Vodafone, 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, 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 made. Pressure to compete and stem customer losses is good reason for BT to accelerate its fibre rollout. The Business division continues to focus on the UK, selling ops in Ireland and Italy and reducing geographical diversity, while group net debt of 19.8 billion compares to a stock market valuation of around £16 billion.   

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More favourably, management’s predicted decline in capital expenditure over the medium term is expected to boost group cashflows, increasing financial flexibility and potentially enabling the firm to pay down debt or increase the dividend, or even both. Reductions in staff and energy usage continue to underpin a targeted £3 billion cost reduction programme by 2029. Investments in AI are expected to eventually lower costs such as those for customer service, while a major share stake held by Indian conglomerate Bharti Enterprises adds some speculative interest. 

For now, and while investment expenditure remains an overhang, potential to strengthen the business and receive a forecast dividend yield of close to 5% is likely to see investors stick with the shares.  

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:

Strong hold