Interactive Investor

ii view: BT talks TV but shrinks revenue estimate

3rd February 2022 11:16

Keith Bowman from interactive investor

An industry dealmaker recently boosted his stake in BT and the forecast dividend is over 3.5%. Buy, sell or hold? 

Nine-month results to 31 December

  • Revenue down 2% to £15.67 billion
  • Pre-tax profit down 3% to just under £1.537 billion.
  • Net debt up 2.6% year-over-year to £17.74 billion

Chief executive Philip Jansen said:

"BT has had a good quarter with encouraging market share performance, and we continued to make significant improvements in customer service, although revenue from our enterprise divisions was softer than we expected.

“Today sees two important strategic partnership announcements on how BT moves forward in the fast-evolving content and TV business."

ii round-up:

Latest results from telecoms provider BT Group (LSE:BT.A) broadly failed to inspire investors despite news of TV deals with both Sky and Discovery.

Full-year 2022 revenue is now expected to be down around 2% from a previous flat forecast given both an ongoing drag from the pandemic and supply chain issues. Revenue for the nine months to the end of December fell 2% to £15.67 billion and pre-tax profit retreated 3% to just under £1.54 billion.

BT Shares fell by around 5% in UK trading, having gained by more than 10% year-to-date coming into these results. Shares for rival Vodafone (LSE:VOD) are up by over 12% during 2022 with the FTSE 100 index up by around 1%. 

BT announced that it is in talks with Discovery of the US about forming a sport broadcasting joint venture, combining its sports business with Discovery's Eurosport UK operation to forge a 50/50 joint venture. It had also reached an agreement in principle with Sky for a new longer-term reciprocal channel supply deal going beyond 2030.

BT’s build out of its Fibre-to-the-Premises (FTTP) network remains ongoing, as does the expansion of its 5G mobile network, which now covers over 40% of the UK population. 

An interim dividend of 2.31p per share is due to be paid to shareholders on 7 February. 

Full-year results to the end of March are scheduled for 12 May. 

ii view:

BT Group provides and sells communications products and services to consumers, small and medium sized companies 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 150 countries. Openreach physically connects homes and businesses across the UK.   

For investors, the competitive environment remains intense, with rivals such as Comcast's (NASDAQ:CMCSA) Sky business competing hard to win broadband services. Shareholder returns are also not what they once were following a temporary suspension and rebasing of the dividend payment. 

But an original 12.1% stake taken by telecoms dealmaker Patrick Drahi has subsequently increased to 18%, with hopes of corporate change at BT persisting. The dividend payment was previously resumed, albeit at a lower level, and progress on cost savings has been ahead of plan. In all, with possible M&A developments bubbling in the background and the shares currently standing on an estimated future dividend yield of over 3.5%, investors are likely to remain patient. 

Positives

  • Expanding fibre broadband and 5G network
  • Previously recommenced dividend payments

Negatives

  • Subject to regulatory rulings
  • Ongoing pandemic disruption

The average rating of stock market analysts:

Tentative buy

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