BT Group plc Ordinary 5p (BT.A)

Company overview

British Telecom is a former state monopoly. The company is currently divided into four divisions: 1) Retail - local connections 2) Wholesale - national network 3) Openreach – links local connections to the national network 4) Global Services – IT solutions for international organisations. The company operates in over 170 countries, with shares listed on both the London and New York stock exchanges.

HL Comment (3 February 2012)

BT delivered a solid set of third quarter results earlier today, due to a combination of factors that included cost cutting initiatives, lower regulatory charges, and a strong demand for a wide range of its services. Headline figures saw pre-tax profits for the three months to the end of December rise 48% to £652 million, while revenue fell 5% to £4.77 billion. The group, which has offset falling revenues in recent years by deep cost cuts and an improving operational performance, said notwithstanding the drop in revenue, earnings and cash generation remained good. In advance of announcing its latest results, the company said it had expanded the availability of its fibre-optic broadband. The "ultra-fast" broadband, using direct fibre-optic connections would become available to most British homes and businesses next year, added the telecoms group.

Negative Points:

• The telecom group reported a significant increase in its pension deficit, which rose to £4.1 billion, (compared with a deficit of £2.5 billion at the end of September) citing a result of low returns on corporate bonds, the impact of quantitative easing and inflation, added the group.
• Competition across the industry remains intense, with the likes of BSkyB, Talk, Talk and Virgin Media all competing hard. BT also faces potential competition from Fujitsu, Japan's biggest computer-services provider, which said last year it wanted to tap BT’s infrastructure to build a rival fibre network.
• Growth in mobile internet devices is ongoing, providing alternative competition to fixed line offerings.
• The group operates in a highly regulated environment.

Positive Points:

• The company said it had expanded the availability of its fibre-optic broadband to seven million homes and signed up 95,000 customers to it.
• Retail broadband net additions were 146,000 vs 166,000 in the second quarter. This is a 56% market share of retail broadband net additions vs 63% last quarter.
• BT's global services division, which undertakes outsourcing work, providing information-technology and telecommunications services to companies, is continuing to grow in Asia and Latin America. The group is increasing its investment in overseas activities with orders so far this year up over 50% in the region.
• Due to continued strong cost control, core earnings were up 3% to £1.5 billion, broadly in line with forecasts.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.