BT shares are rising as traders bet the giant has turned a corner

Thursday May 16, 2024 11:50 am

BT saw sales remain flat at £20.8 billion, compared to £20.7 billion the year before, but pre-tax profits fell 31 percent.

BT shares soared this morning despite a write-down of almost half a billion on the value of its business – with traders betting the company is finally about to reap the benefits of an expensive technology rollout.

The company has ramped up infrastructure spending on the latest digital technology, including fiber optic kits, which have delivered big profits in recent years.

But boss Alison Kirkby said the company was now able to put that increased investment in the rear-view mirror – and would now reap the rewards.

The optimistic people sent the shares higher, despite mixed annual results.

While the group’s turnover was flat at £20.8 billion, compared to £20.7 billion the year before, pre-tax profits fell 31 percent.

BT Group’s annual results to March 31 included a significant non-cash goodwill impairment charge, which, together with higher depreciation and pension interest charges, hit profits.

That impairment meant a write-down of almost £500m on the value of the business due to reduced profitability in recent years.

Capital expenditure for the group fell by three percent to £4.9 billion, due to lower costs in BT’s drive to connect fiber directly to homes, with the program adding a record 78,000 new customers per week to its network .

The group reported strong demand from Openreach customers for fibre, with a net addition of 397,000 in the last quarter and a total connected premises now in excess of 4.8 million.

BT’s share price has fallen by almost 25 percent in the past year as the costs of building new fiber and 5G networks continue to haunt the company.

The company is currently a favorite among short sellers in the telecoms sector, but BT shares reacted positively to the news as the market opened today, with the stock rising eight percent in early deals.

The company aims to retire its traditional phone network by 2025, switching to digital instead and focusing on building 5G networks across the country.

BT chief executive Allison Kirkby said: “Having passed peak investment for our full fiber broadband rollout and delivered our £3 billion cost and services transformation program a year ahead of schedule, we have now reached the turning point of our long-term strategy.”

Thanks to these measures, BT has now upgraded its near-term clash flow expectations, with the company planning to double its normalized free cash flow over the next five years, with a further £3 billion of annual cost savings expected to materialize over that time are being reached. .

Kirkby noted that the company had also increased its dividend for the year by 3.9 percent, to eight pence per share.

“As we enter the next phase of BT Group’s transformation, we are sharpening our focus to be better for our customers and the country, by accelerating the modernization of our operations and exploring options to optimize our global operations,” the CEO added. . “This will create a simpler BT Group, fully focused on connecting Britain and well positioned to drive significant growth for all our stakeholders.”

Matt Britzman, equities analyst at Hargreaves Lansdown, said the company was growing “slowly” but there were “clear signs of progress” in its results.

“Costs associated with fiber deployment appear to have peaked, and this is critical as telecom giants continue to be punished for investing heavily in the future,” he explains.

“BT’s future is highly dependent on overcoming the peak phase of fiber deployment, and to its credit, progress is looking good. The real question mark for the industry as a whole is whether all that spending will generate enough revenue growth to materially improve performance. That said, BT appears to be one of the better placed names, especially with a major asset like Openreach on its books,” Britzman summarized.

Meanwhile, Matt Dorset, equity research analyst at Quilter Cheviot, said management’s “decision to increase the dividend was a signal of ‘confidence'” and offset concerns the company would cut the payout. With a dividend yield of around 6.9 per cent now on offer, “the valuation remains very attractive and is significantly below the sector average and below BT’s longer-term average,” Dorset added.

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