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BT - on track for full year

BT's underlying revenue rose 3% in the third quarter, reaching £5.3bn...

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BT's underlying revenue rose 3% in the third quarter, reaching £5.3bn. The strongest growth came from Openreach, while Consumer also rose. This offset declines in the Business division.

Underlying cash profits (EBITDA) rose 3% to £6.1bn, taking all three quarters into account. Profits are being partially held back by higher costs, and legacy declines in Business.

BT said it's on track to meet full-year expectations, including growth in revenue and cash profit, as well as underlying free cash flow at the top end of £1.0-£1.2bn.

The shares rose 2.3% following the announcement.

View the latest BT share price and how to deal

Our view

BT delivered another quarter of revenue and profit growth, largely driven by Openreach which is benefitting from price hikes. That's led to full-year guidance being reiterated, with growth expected on the top and bottom line. Management hasn't put any exact figures on just how much these are expected to grow, but we're not expecting anything to shoot the lights out.

Cost cuts remain in focus, led by the news that the workforce is planned to drop by up to 42% by 2030. Some positive developments on the build cost side for fibre infrastructure means cash flow's expected at the top end of the guided range this year. Once the fibre and 5G infrastructure is built and adopted, a much leaner operation is needed to generate long-term growth.

The wider strategy involves significantly modernising and simplifying operations and product lines. This includes digitising customer journeys and moving customers onto the new 5G and fibre broadband networks, which have lower running costs than legacy infrastructure.

The real workhorse for this is the group's infrastructure arm, Openreach, which is responsible for maintaining and building out the new fibre networks. It hopes to reach 25mn premises by 2026 and spending's set to ramp up even further as BT looks to take advantage of government tax breaks. This technical-heavy business is unique and higher margin, and an asset to the business.

However, substantial improvements aren't free. Constant investment is one of the realities of the telecoms business, as infrastructure needs to be maintained and upgraded. We worry that despite the progress and the goal of reducing spend once infrastructure's in place, BT will have to keep shelling out to keep itself on the cutting edge. It doesn't help that telecoms is an inherently difficult sector to try and deliver attractive margins. Both regulators and customers will always want more for less.

Another drain on cash is BT's large pension deficit. The current payment plan cost just over £700mn in the first half. Add to that the debt and lease pile, which cost a combined £823mn to service over the half, and the drags on cash are hefty.

BT has its attractions. Its mobile networks are broad and generally high quality, while Openreach is unique and higher margin. But it needs to leverage all of its advantages if it's to satisfy the never-ending investment demands and return to sustained growth.

BT key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 1st February 2024