BT Group plc (LON:BT.A) is expected to report another quarterly drop in earnings next week as it continues to grapple with rising costs.
In the second quarter, underlying earnings (EBITDA) fell 4% compared to the same period a year earlier, reflecting higher costs resulting from securing sports rights, improving customer services and its pension scheme.
READ: BT Group and Sky looking over their shoulders as Amazon rumoured to be in running for Premier League soccer rights
The next round of bidding for Premier League broadcasting rights, which BT currently shares with Sky PLC (LON:SKY), will be held in February.
BT may need to have to fork out more dough to keep the rights, particularly if rumours about competition from online streaming services, such as Netflix and Amazon, are true.
Openreach tackles regulatory crackdown and fibre network upgrade
On top of that, BT’s network division Openreach will have to set aside cash to upgrade the UK’s fibre-optic cables to increase broadband speeds.
Openreach is also facing a clampdown from regulator Ofcom on the prices it charges wholesale customers. Ofcom is expected to decide how much to cut Openreach’s price for fibre access in February.
BT’s massive pension deficit is another key issue and the outcome of a triennial valuation of its scheme is expected to be released in May.
It may also decide to appeal the High Court's decision to reject the company’s bid to link pension payments to consumer price index (CPI), rather than the retail price index (RPI) - a higher measure of inflation.
READ: BT considers appeal on court ruling against plan to change index for pension rises
Numis said it thinks BT’s stock will benefit from an end to the uncertainty surrounding all these major issues.
Consensus forecasts 'too bearish', says Numis
As for BT’s third quarter results on Friday, the broker thinks consensus forecasts for a 7% year-on-year fall in EBITDA is “too bearish”.
“In fiscal year 2017, EBITDA was higher in the second half vs the first half but this was so in 2016 also, ”it said.
“More importantly, fibre growth prospects remain good: at the end of the second quarter, 57% of all BT retail broadband customers took fibre (+8 percentage points year-on-year) but that number was just 30% (+10 percentage points year-on-year) for all of BT's retail rivals reselling Openreach.”