BT Group PLC’s (LON:BT.A) third-quarter earnings are forecast to fall 6% as the telecoms giant grapples with difficult competition in UK broadband, a restructuring at its troubled Global Services arm and tighter regulation.
BT reports its quarterly results on Thursday and the consensus estimate for earnings (EBITDA) is £1.82bn, down from £1.94bn a year ago. Revenue is expected to drop 2.3% to £5.93bn.
READ: BT and other broadband providers face clampdown over pricing under new Ofcom rules
UBS analysts said: “To note, as the basis for the weakness of headline financials are; 1) tough Q3 comps 2) highly competitive UK fixed broadband market 3) new and lower wholesale pricing at Openreach 4) restructuring at Global Services.”
Enterprise division faces top line pressures
It will be the first time BT reports numbers from the newly formed enterprise division, which was created following the merger of business and public sector divisions with the wholesale and ventures arm.
Barclays said the division is facing top-line pressures that are unlikely to abate any time soon due to “structurally declining revenue trends that are exceeding newer growth areas, driven in part by technology disruption”.
“We believe continued cost-cutting should support the division going forward – a theme likely to persist at the upcoming 3Q results, where expectations appear low.”
BT has taken steps to lower its high-cost base by closing its final salary pension scheme, cutting jobs and deciding to move out of its central London headquarters in St Paul’s.
Investors await strategy from new boss
The moves are part of a strategy unveiled by former boss Gavin Patterson before he stepped down late last year and handed over the reins to Philip Janson.
Under the strategy, BT has launched new packages that combine broadband, mobile and pay-TV as a single service and bill in a bid to draw in more customers in a competitive market.
Investors are now waiting to see how the strategy unfolds and what Janson has planned for the business. Janson is expected to announce a fresh strategy at BT’s full-year results in May.
READ: BT shares surge despite dividend cut as it expects earnings to hit top end of guidance
Berenberg said BT’s third-quarter results should leave full-year guidance “looking easy” and believes Brexit de-risking has further to run.
“Beyond Q3 and Brexit visibility, we view the middle of this year with caution, seeing May’s full-year results as Mr Jansen’s opportunity to outlay his vision, including risk to medium-term capex and dividend beyond the current two-year commitment of 15.4p,” Berenberg said.
“We are positive in the longer term on: 1) cost transformation; 2) cash flow upgrades from a possible retrenchment of BT Sport; 3) increased collaboration with Deutsche Telekom, and 4) pension deficit inputs to be proven too conservative in the very long term.”