Can we make a bull case for BT Group PLC (LSE:BT.A) following today’s earnings call?
The FTSE 100-listed telco saw its revenues notch higher in the first half with underlying earnings trending in the right direction.
Full-year guidance was reiterated as a result of these par-for-course earnings, with an interim dividend of 2.31p yielding no surprises.
BT Group retains a significant market share in both the Openreach wholesale (where it serves over 650 communications providers) and retail broadband markets through EE, despite increasing competition from Virgin Media O2 and a raft of altnets.
BT lost around 255,000 broadband connections in the past six months and expects that figure to reach 400,000 by year-end.
A lot of these losses were in regional areas where VMO2 is more present and BT’s infrastructure remains outdated compared to new, shinier alternative providers.
But as BT’s country-wide rollout progresses in the years ahead, the group will hopefully start to become more attractive to customers outside of BT’s big-city stronghold.
The company began rolling out fibre-to-the-premises (FTTP) broadband in 2013 before accelerating its rollout in 2019.
As of today, the company has reached over 12 million UK premises with FTTP with another six million currently in progress.
Current projections have BT successfully achieving its 25 million by 2026 target.
In terms of uptake, 33% of connected households are now using BT Openreach’s network.
Whether BT dragged its heels with its fibre rollout is a matter of opinion but everyone can agree that it is coming at a significant ongoing cost.
The company pledged to invest £12 billion in its fibre network over the next five years when it first set a goal to reach 25 million UK premises with FTTP by 2026.
Reported capital expenditure in the past six months was a little over £2.3 billion, which was down 11% firm-wide or 8% lower for Openreach alone, with lower fixed-network spend driven by lower per-unit buildout costs.
It seems that BT is becoming more efficient with its rollout, with per-unit costs coming in at the bottom of the £250-£350 per-premise range
As a result, full-year firm-wide capex is expected to come in at £5 billion, down from £5.1 billion in the previous financial year.
BT benefits from an incumbent wholesale position and the fact that over two-thirds of its revenue base is linked to CPI, making the top line fairly predictable.
That leaves the profit burden on capex, which is something BT appears serious about getting a grip on.
Shares were shot 6% higher in response to today’s interims, but after years of shoddy performance, they’re still cheap at around 6.2 times price to earnings.
Some analysts noted macroeconomic headwinds, but just like the big banks, BT has shown skill in passing inflation costs down to the unwitting consumer.
All in all, is BT stock high growth? No, but sustainable, cost-effective full-fibre in underserved areas rollout remains shareholders’ best long-term bet.