Why BT shares rallied after Q1 results
27th July 2018 11:45
by Richard Hunter from interactive investor
Can first-quarter results help BT shares build on a modest recovery since June? Richard Hunter, head of markets at interactive investor, gives his view.
BT Group has been a work in progress for some considerable time and this first-quarter update has shown again that there are many plates to spin in order to drive progress.
Of course, the hope is that a new chief executive will transform the prospects of the lumbering, if not slumbering, beast which BT had become. The new CEO will have been given something of a head start in terms of an ambitious £1.5 billion cost savings programme, growing adjusted earnings within the Consumer and Global Services businesses and with all the quadruple play potential that the EE acquisition provides.
Meanwhile, the company's recent announcement of Openreach wholesale pricing discounts may have fended off the regulator, at least for the moment, whilst from an investment perspective the decline in the share price has given a spike to the dividend yield, which at 6.9% is certainly an incentive for investors to wait as the transformation plan is executed.
Even so, the scale of the task ahead should not be underestimated.
Source: interactive investor Past performance is not a guide to future performance
There is continuing pressure on cash flow, Wholesale and Openreach reported declines in adjusted earnings, whilst the pensions situation lurks in the background.
The lack of significant progress in recent years has finally led a decision that the CEO needs to be replaced, and there are a host of competitors waiting to make life hard for BT, particularly in the fibre networks space.
There are no unwelcome surprises within the update, sending the shares into a brief relief rally. Nonetheless, over the last year the price has dipped by 28%, as compared to a 3% hike for the wider FTSE 100, and in the absence of sustained and demonstrable progress, the shares may struggle to break out of the current stagnancy.
In the meantime, the market view of the shares has split opinion, with the consensus remaining at a hold, albeit a strong one
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