Why buyers are ignoring BT shares
Results were better than expected, but BT still struggles to convince investors to buy into a recovery.
1st February 2019 15:29
by Lee Wild from interactive investor
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Results were better than expected, but BT still struggles to convince investors to buy into a recovery.
BT Group (LSE:BT.A) shares reacted badly to yesterday's third-quarter results, trading as low as 221p, their worst level since September 2018. Buyers have had a nibble, but there's nothing convincing yet.
Results were better than forecasts, but expectations were pretty low, and the numbers still lacked any real catalyst to trigger a significant rebound or for hedge funds to trade out of short positions.
This pair of analysts were certainly unconvinced.
BT's consumer division was behind adjusted cash profit of £1.878 billion versus consensus of £1.822 billion.
Source: TradingView (*) Past performance is not a guide to future performance
"Broadly speaking, Consumer is seeing good growth, Openreach is being impacted by regulatory cuts/new wholesale discounts and Enterprise/GS is being restructured leading to revenue declines but EBITDA trends are more resilient," explains Polo Tang, an analyst at UBS.
"While Q3 results are positive, upside could be tempered by commentary around the outlook for Consumer and lack of visibility on Brexit/the new strategy post the arrival of the new CEO."
For the full-year to March 2019, UBS is looking for revenue of £23.34 billion, down from £23.75 billion the year before. Earnings per share is tipped to fall from 27.9p to 25.9p, although the dividend is expected to remain steady for a second year at 15.4p. That implies a forward yield of 6.7%.
UBS rates BT shares as 'neutral' with price target of 260p.
Over at Deutsche Bank, analyst Robert Grindle is more conservative, keeping his 'hold' stance and 235p target.
"The new CEO is likely to require some time before putting his name to targets which we view have considerable headwinds due not least to alt-FTTP [Fibre to the Premises] build. We have no beef overall to the Q3 print however,"writes Grindle.
"Being picky, we flag that BT's IAS pension deficit increased £5 billion net vs £4.5 billion last quarter (lower UK yields), though it appears the risk from the recent Lloyds pension case is now just c.£100 million.
"We do not find valuation compelling enough given the risks."
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