After Tuesday’s share price debacle in the wake of news accounting issues at its Italian unit were much worse than initially feared, investors will be hoping BT Group PLC (LON:BT.A) can provide some reassurance with third-quarter numbers on Friday.
BT lost almost £8bn, or more than a fifth of its stock market value on Tuesday as its share price plunged by 21% - its worst-ever one-day fall – after the telecoms giant more than trebled an estimated write-down on its Italian business to around £530mln, up from its £145mln initial forecast made in October.
The firm said an independent review of BT Italy, carried out by accountants KPMG, had found “a complex set of improper sales, purchase and leasing transactions”.
The company also warned of a slowdown in some of its other operations, with international corporate clients cutting back after the Brexit vote and UK government departments reducing their spending.
As a result, BT said its full-year 2016 profits would be £300mln lower than previously expected.
Welcome break? ...
George Salmon, equity analyst at Hargreaves Lansdown noted that: “With the group’s net debts pushing £9.6bn following the acquisition of (mobile phones operator) EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock so this was the last thing the group needed.”
Meanwhile, a long-time BT cheer-leader, John Karidis, analyst at Haitong Research said: “Based on our experience of BT and our work on the company to date, we think management has chosen to reflect the causes of today’s profit warning onto revised FY17 and FY18 guidance, but not the continuing good performance of other BT divisions (e.g. BT Consumer, EE and Openreach). As ever, BT always errs heavily on the side of caution.”
The analyst placed his rating, fair value estimate, and earnings forecasts for BT ‘under review’ ahead of the group’s third-quarter results.
Ahead of this week’s bad news, analysts at Barclays Capital had said: “BT’s 3Q results should provide a welcome break from the recent focus on pension and regulation.”
They were looking for continued signs of recovery in BT’s broadband market growth and expected EE to show resilience.
In a preview note to clients, Barclays forecast a small rise in BT’s third quarter revenues to £6.09bn, up 0.8% from the same stage a year earlier, with underlying earnings (EBITDA) declining by 4.7% to £1.95bn.
Aside from the BT focus, there will be little other corporate news around on Friday, although specialist mortgage lender Paragon Group of Companies PLC (LON:PAG) will issue a first quarter trading update.
Analysts at Peel Hunt “anticipate a solid” statement.
In a preview note to clients, they said: “BTL (buy-to-let) volumes have now stabilised after the impact from stamp duty changes, albeit Paragon continues to shift focus to other asset classes.”
Friday
Interims: BT Group PLC (LON:BT.A)
Trading statements: Paragon Group of Companies PLC (LON:PAG)
Finals: Aberforth Smaller Companies Trust PLC (LON:ASL)