16th May 2024 10:39
(Alliance News) - BT Group PLC is showing "clear signs" of progress, analysts on Thursday said, although some questioned whether the rosy free cash flow targets promised by new Chief Executive Allison Kirkby would be achieved.
On Thursday, BT lifted its dividend and forecast significantly improved cash flow in the coming years now that peak investment in its full-fibre roll-out has passed.
Looking ahead, BT said it would focus on the UK and "explore all options to optimise our global business".
Shares in the London-based telecommunications provider rose 11% to 125.75 pence in London on Thursday.
Commenting as BT unveiled results for the financial year ending March, recently installed CEO Kirkby said: "Having passed peak capex on our full-fibre broadband rollout and achieved our GBP3 billion cost and service transformation programme a year ahead of schedule, we've now reached the inflection point on our long-term strategy."
Kirkby said this gave BT the confidence to provide new guidance for "significantly increased short term cash flow" and set out a path to "more than double our normalised free cash flow over the next five years".
Kirkby predicted that capital expenditure will reduce by around GBP1 billion post peak first to the post build, with normalised free cash flow of around GBP2.0 billion in financial 2027, and around GBP3.0 billion by the end of the decade.
In financial 2024, normalised free cash flow was GBP1.28 billion, down from GBP1.33 billion a year prior.
Kirkby said the enhanced cash flow allows BT to increase its full-year dividend by 3.9% to 8.0 pence per share from 7.70p a year.
Pretax profit for the financial year fell 31% to GBP1.19 billion from GBP1.73 billion the year prior reflecting impairment of goodwill and increased depreciation.
Revenue edged up to GBP20.80 billion from GBP20.68 billion.
BT pledged to make a further GBP3 billion of gross annualised cost savings to be reached by the end of financial 2029. This will cost GBP1 billion to achieve, BT said.
John Moore, senior investment manager at RBC Brewin Dolphin, said: "BT has been under pressure for a while now, with growth more or less stalling in recent years. Today’s results show a continuation of that story, with revenues flat and profits falling."
He noted there have been some "inconsistent moves" such as selling O2 and then buying EE and setting up a TV service which was subsequently sold.
But, if BT "can prioritise its core business, realise Openreach’s full potential, and execute a more focussed approach then a meaningful turnaround is possible," he thinks.
Matt Britzman, equity analyst, Hargreaves Lansdown said: "Credit where it’s due, there are clear signs of progress here."
He said with costs associated with the fibre buildout looking to have peaked free cash flow should jump higher, and markets can reassess how to price these businesses.
He said the real question mark for the sector at large is whether all the investment is going to generate enough top-line growth to materially improve performance.
"That said, BT does look like one of the better-placed names, especially with a great asset like Openreach on the books," he said.
Analysts at UBS struck a more cautious tone.
"We re-iterate our view that BT needs to step up its fibre rollout/capex to preserve value at Openreach. Shares could move higher on the [free cash flow] guidance but we remain wary of rising broadband infrastructure competition for Openreach," it said.
The broker added free cash flow guidance is a "notable positive but the question is whether it is achievable amid weakening near-term trends."
US has a 'sell' rating on BT.
By Jeremy Cutler, Alliance News reporter
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