BT results: Will the telecoms giant ring the changes after Covid?
The City will turn its attention to BT tomorrow morning, when the blue-chip telecoms giant will announce its results for the full year.
The former state monopoly has seen its share price recover in the last year, but it’s been a tough year as the pandemic took its toll on revenue and profit.
Here’s what to look out for as BT reports:
The figures
BT’s guidance estimates profit of between £7.3bn and £7.5bn in 2020, down from £7.9bn the previous year.
Normalised free cash flow is set to come in at between £1.3bn and £1.5bn. Again this is lower than the £2bn recorded in 2019.
BT has already said it won’t pay a dividend, but is planning to reinstate it in the next year. Analysts’ consensus puts the potential payout for 2021 at around 7p per share.
Covid impact
The dent in BT’s finances reflect the challenges posed by the pandemic, which has mounted pressure on the blue-chip giant in an already cut-throat market.
The forecast drop in profit mirrors lower revenue as a result of the impact of Covid on business customers and asset sales, as well as the ongoing decline in its traditional fixed-line services. Cash flow will also drop due to these lower profits and a significant ramping up of capital expenditure as BT rolls out full-fibre broadband and 5G services.
“Over the last year BT has had to contend with the competing demands of a tough market in broadband and mobile hitting margins in its consumer division, while enterprise and the global divisions are having to cope with rapidly changing business environments, as fixed phone lines get used less,” said Michael Hewson at CMC Markets.
“It is also competing with Sky for eyeballs with its huge investment in BT Sport, and where the latest Premier League rights are coming up for renegotiation.”
Full speed for full fibre
Perhaps the key point of interest for analysts will be any revelations about BT’s plans for rolling out full-fibre broadband.
The company is leading the launch of the superfast internet network across the UK as part of the government’s plans to “level up” the country.
Earlier this year Ofcom gave BT the green light to continue charging higher prices for full fibre, marking a major boost for the company to make a fair return on its £12bn investment.
Chief executive Philip Jansen has vowed to “build like fury”, and investors will be looking for any signs of an accelerated plan.
BT previously vowed to bring full-fibre to 20m premises by the middle of the decade but could lift these targets after announcing its full-year figures, according to a Telegraph report.
BT Sport
The latest results come just weeks after BT confirmed it is in talks about a potential sale of a stake in BT Sport.
The telecoms firm is said to be in talks with ITV and streaming rivals such as nascent sports platform Dazn over a move to offload the channel, but investors will be hoping for an update on progress.
A sale would free up cash for BT to invest in its full-fibre rollout as costs continue to escalate elsewhere in its business.
“Funding its liabilities, its capital investment programme and bidding for sports rights looks to be proving too much in the final admission that the strategy outlined by Mr Jansen’s predecessor, Gavin Patterson, has failed,” said Russ Mould and Danni Hewson of AJ Bell.
“His 10 per cent dividend growth target is long gone, Mr Patterson himself is long gone and the dividend is long gone, having been cut to zero a year ago.”
Shares rose after the talks were confirmed, showing investors welcomed the move. But William Ryder, equity analyst at Hargreaves Lansdown, was less enthused by a potential sale.
“It has been reported that a sale is on the cards, and while our view would be dependent on the price, BT would be giving up a strong asset that helps set them apart from the competition,” he said.
Plugging the pension
Another key area of concern for BT in recent years has been its ballooning pension liabilities.
Alongside mounting capital expenditure, the pension pile has threatened to hamstring boss Philip Jansen’s investment plans and taken its toll on the dividend.
However, analysts at Jefferies expect BT’s pension deficit to be roughly £7.8bn for 2020 — significantly lower than previously forecast.
BT has initiated talks over selling the scheme a stake in its Openreach division, which is responsible for the full-fibre rollout. But analysts suggested this was unlikely to happen, pointing instead to potential third-party investment in Openreach.
A final point of interest for analysts will be any update on who might replace chairman Jan du Plessis, who is set to step down after less than four years in the role.
His departure follows reports of a boardroom rift with Jansen — something BT has vehemently denied.