BT Group beats expectations in FY2022
BT Group published annual results this morning covering the 12 months to the end of March.
The telecoms giant said adjusted revenue was down 2% as expected at £20.8 billion as supply chain problems and a delayed recovery from Covid-19 weighed on the topline. That marked the fifth consecutive year that sales have fallen.
However, a tight handle on costs meant BT Group saw adjusted Ebitda – its headline earnings measure – rise 2% to £7.57 billion. That was at the lower end of BT Group’s guidance range of between £7.5 billion to £7.7 billion but still impressed the markets considering they believed the company would miss its target and deliver earnings of just £7.42 billion.
Pretax profit at the bottom-line jumped 9% to just under £2.0 billion, although this was below the £2.08 pencilled-in by analysts.
The beat at the adjusted Ebitda level has installed confidence that BT Group can deliver its ambitious goal to grow adjusted revenue for the first time in six years and deliver adjusted Ebitda of at least £7.9 billion this year. Analysts had doubts over whether BT Group could achieve this goal before the results were released this morning considering they had only pencilled-in adjusted Ebitda of £7.83 billion for the 2023 financial year.
BT Group cashflow to improve as capex declines
BT is set to more than double free cashflow before the end of the decade once it is past peak spending on ultrafast full-fibre broadband and 5G, and that could be boosted further considering BT has raised its cost-saving targets this morning. It has already delivered £1.5 billion in annual cost savings and is now eyeing £2.5 billion by the end of the 2025 financial year. Previously, it was eyeing £2 billion of savings by the end of the 2024 financial year.
It has now hooked-up 7.2 million homes to faster broadband and its 5G network covers over half of the UK population. The rollout is accelerating but BT Group has a long way to go before its converged network offering faster connectivity is fully unleashed across the UK.
The mammoth task of rolling out these services across the UK is not cheap. Normalised free cashflow was down 5% during the year at £1.4 billion as a result of a 25% jump in capital expenditure to £5.3 billion. However, analysts believe cashflow will start to improve in the current year considering the capex budget is set to fall to £4.8 billion.
BT Group restarted dividend payments during the year after suspending them at the height of the pandemic and today declared a final payout of 5.39p per share. That meant BT Group delivered on its promise to pay 7.7p over the full year and, while that is lower than what it was paying out before the Covid-19 crisis started, it has promised to follow a progressive policy and grow the dividend going forward.
BT Group and Warner Bros Discovery form new sports venture
BT Group also revealed this morning that it has finalised terms for the new 50:50 joint venture with streaming outfit Warner Bros Discovery that was originally announced back in February. Warner Bros Discovery is a newly-created business formed following the recent merger between WarnerMedia and Discovery in a $43 billion deal.
The duo will create a new premium sport offering for the UK and Ireland. Notably, existing customers of BT TV or BT Sport are set to receive Discovery+ as part of their existing subscriptions.
This will bring together the sporting portfolios of both BT Group and Eurosport UK which, together, will ‘have one of the most extensive portfolios of premium sports rights including UEFA Champions League, UEFA Europa League, the Premier League, Premiership Rugby, UFC, the Olympic Games, tennis Grand Slams featuring the Australian Open and Roland-Garros, cycling Grand Tours including the Tour de France and Giro d'Italia and the winter sports World Cup season.’
BT Group is set to receive an initial £93 million from Warner Bros Discovery as part of the deal, and up to £540 million through a possible earn-out. Importantly, Warner Bros Discovery will have the ability to buy BT Group’s interest in the joint venture within the first four years of it being established. The venture should be set up before the end of 2022, BT Group said.
Where next for the BT Group share price?
BT Group shares are trading up over 1% in early trade this morning at 178.90p.
The 50-day moving average has recently slipped below the 100-day sma to provide a new bearish signal, although a fall below the 200-day sma would be more significant. The RSI has risen recently but still remain in bearish territory to suggest the stock could fall back towards the 2022-low of 153.70p before approaching oversold territory and rebounding. This level must hold to avoid opening the door to sub-136p that we saw last October. In the meantime, the 200-day sma at 172p should be treated as an initial floor for the stock and, if that fails to hold, the 157.40p level of support we saw last November and December.
The stock needs to recapture the 50-day and 100-day moving averages at 183p to signal a reversal is on the cards, but it will need to surpass 190p and then the April high of 194p to break out of the current downtrend. From there, it can bring the 2022-high into its crosshairs and look to move above 200p.
Notably, the 24 brokers that cover the stock believe the stock can climb as high as 210.50p over the next 12 months, which is over 20% above the current share price and would mark the highest level for the stock since October 2019.
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