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BT (BBB) Earnings Preview

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  • FY earnings tomorrow; company-provided pro-forma consensus shows FY revenue +2.2% YoY, FY EBITDA +1.8% YoY, cash CapEx -2% YoY and nFCF -11% YoY. Q3 results were broadly in line on both revenue and EBITDA at +2.5% YoY and +1% YoY.
  • Openreach numbers will be watched after a strong Q3 with revenue +7% YoY and EBITDA +11% with the growth based on higher broadband revenues per user though the unit lost over 100k lines. With Ofcom rules changing on pricing affecting pricing going forward, line losses pose a threat to the growth centre. Equity shorts may increase focus on these results.
  • We are sceptical around the credit with several pressure points including the risk of a buyout on the back of Drahi’s 25% stake, union problems, the drag of their pension on cash flow (to continue as per the November valuation though the deficit has shrunk).
  • Leverage and cash flow been broadly flat in recent times; guided cash flow improvement doesn’t come until peak fibre rollout passes towards the end of the decade.
  • That said, management has a firm commitment to its BBB rating as is likely demanded by its pension trustees so the scope for significant widening looks limited.
  • Scope for any major changes to policy/practice from the new CEO look limited given she has sat on the board for a number of years.

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  • FY earnings tomorrow; company-provided pro-forma consensus shows FY revenue +2.2% YoY, FY EBITDA +1.8% YoY, cash CapEx -2% YoY and nFCF -11% YoY. Q3 results were broadly in line on both revenue and EBITDA at +2.5% YoY and +1% YoY.
  • Openreach numbers will be watched after a strong Q3 with revenue +7% YoY and EBITDA +11% with the growth based on higher broadband revenues per user though the unit lost over 100k lines. With Ofcom rules changing on pricing affecting pricing going forward, line losses pose a threat to the growth centre. Equity shorts may increase focus on these results.
  • We are sceptical around the credit with several pressure points including the risk of a buyout on the back of Drahi’s 25% stake, union problems, the drag of their pension on cash flow (to continue as per the November valuation though the deficit has shrunk).
  • Leverage and cash flow been broadly flat in recent times; guided cash flow improvement doesn’t come until peak fibre rollout passes towards the end of the decade.
  • That said, management has a firm commitment to its BBB rating as is likely demanded by its pension trustees so the scope for significant widening looks limited.
  • Scope for any major changes to policy/practice from the new CEO look limited given she has sat on the board for a number of years.