Only registred members can create thier own customized alerts.
BT proved very successful in attracting new internet customers in Q2 with BT Vision providing a key selling point
The mobile data boom, driven by devices like smartphones, helped mobile telecom firms like Vodafone perform well. In this context fixed-line telecom companies like BT Group (LON:BT.A) appear to be under threat as households can potentially cut themselves off from their telecoms line.
In reality fixed-line telecoms groups have a key role for the fast broadband they provide as data hungry uses grow. Drivers of broadband data demand growth are online music, online gaming, cloud computing and video content. BT proved very successful in attracting new internet customers in Q2 with BT Vision providing a key selling point.
With BT owning the local loop - the copper wires from the local signal box to each home – it has an effective monopoly position which has underpinned robust performance at its Openreach and BT Wholesale divisions. These are stable and reliable businesses with utility-like characteristics accounting for 59% and 30% of group underlying earnings respectively.
In the three months to the end of September (Q2), the broadcast service BT Vision added 41,000 viewers beating BSkyB (LON:BSY) for the first time since the product’s launch in mid-2007. However, BT Vision operates in essentially a different market as it is simply Freeview (free digital TV) but with add-ons such as on-demand sports, films and iPlayer through broadband.
The telecoms business is one with trends for price deflation and as such BT’s revenue fell by 2% in Q2. This follows a revenue fall of 4% last year (year to the end of March 11) but the group expects to see underlying revenue growth return in 2013 at between 0 and 2%.
Meanwhile a focus on costs and improved performance has meant that profits have continued to improve. In the six months to the end of September profits rose by; profits for Q2 were also up by 3%.
Turning to the balance sheet, a key feature of the previous full year results was the reduction in the pension fund deficit to £1.4bn. At the end of September the group noted that: “on a median term valuation basis, which reflects the expected returns from assets and likely liabilities, we estimate that the BTPS [BT Pension Scheme] was in a surplus of £1bn at 30 September 2011.”
Net debt fell to £8.3bn at the end of September from £8.7bn a year ago.
With earnings per share of 21p last year, and further progress in the first half of the current year, the stock at under £2 is trading on a single-digit P/E ratio. This is as two of the group’s divisions saw revenue growth in H1 and the company is expecting overall revenue growth to return next year.
The robust second quarter shows that trading is moving in the right direction with broadband demand growing and BT retail becoming more successful. With the stock on a P/E for next year (year to the end of March 2013) of around 8X and with a yield of 4.8% the shares present good value.
This article was produced by Senior Research Analyst, Andrew Latto
