Interactive Investor

ii view: BT shares rally on results and BT Sport/Eurosport merger

12th May 2022 11:33

Keith Bowman from interactive investor

Expanding its fibre and 5G networks, signing a potentially lucrative deal with Warner Bros Discovery, and offering an estimated future dividend yield of over 4%. Buy, sell, or hold?

Full year results to 31 March

  • Revenue down 2% to £20.85 billion
  • Pre-tax profit up 9% to £1.97 billion.
  • Adjusted profit (EBITDA) up 2% to £7.57 billion
  • Net debt up 1.1% year-over-year to £18 billion
  • Final dividend of 5.69p per share (Nil: 2020)

Guidance:

  • Expects adjusted profit (EBITDA) of £7.9 billion in year to March 2023

Chief executive Philip Jansen said:

“BT Group has again delivered a strong operational performance thanks to the efforts of our colleagues across the business.

“While the economic outlook remains challenging, we’re continuing to invest for the future and I am confident that BT Group is on the right track.”

ii round-up:

Telecoms giant BT Group (LSE:BT.A) today detailed annual results broadly matching City forecasts as it confirmed it was moving its sports TV division into a 50-50 joint venture with Warner Bros Discovery. The joint venture, which will bring together BT Sport and Eurosport UK, will see BT receive £93 million from the American company, plus up to £540 million during an earn-out period.

Revenues slipped 2% to £20.85 billion in the 12 months to March, with adjusted profit rising by the same amount as management continued to attack costs. Shares for rival Vodafone Group (LSE:VOD) are up by a similar amount during 2022. The FTSE 100 index is down by around 3%. 

BT has also extended its cost savings target of £2 billion by end of full-year 2024 to £2.5 billion by the end of 2025.

Its Openreach business continues to expand its fibre broadband network, with it now passing 7.2 million premises and with 1.8 million connections. Its 5G network now covers more than 50% of the UK population.

BT declared a final dividend of 5.39p per share, adding to the 2.31p paid at the half-year results and delivering on its pledge to return a rebased payment. The payment was suspended over its last financial year.

Accompanying management profit guidance for the year ahead looks for adjusted profit (EBITDA) of £7.9 billion. That’s up from this year’s £7.57 billion.

The telecom operator’s first quarter results are scheduled for 28 July. 

ii view:

BT Group provides and sells communications products and services to consumers, small and medium sized businesses 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 businesses and public sector organisations. The global division manages IT infrastructure networks for companies in over 180 countries. Openreach manages its fixed network and physically connects homes and businesses across the UK.   

For investors, the competitive environment remains intense, with rivals such as Sky competing hard to increase share of the broadband services market. Shareholder returns are also not what they once were given heavy investment in network expansion. The cost-of-living crisis could also force some customers to cut back on non-essential purchases and subscriptions, potentially including BT’s pay-television sport service. 

More favourably, a sizeable share stake held by telecoms dealmaker Patrick Drahi continues to generate speculative interest. Progress on cost savings is also being made, while the shares now offer an historic and prospective dividend yield of over 4% - not bad in an environment of still low if rising interest rates. On balance, and with the expansion of both its fibre broadband and 5G mobile networks offering potential for future growth, long-term investors are likely to remain patient. 

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

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