BT down, but not out

BT unveiled better-than-expected half-year results on Thursday which showed heavy cost-cutting driving double-digit profit growth. The dividend swelled by 15%, too, but the market is fiercely competitive, revenue is down and terrier-like regulator Ofcom is an ever-present threat, which explains why the telecoms operator has failed to win over the Square Mile.

Revenue fell by 2% in the second quarter to £4.4 billion, but underlying cash profits grew by 1% to £1.45 billion and underlying pre-tax profit jumped by 13% to £690 million. That offset a weaker first-quarter, leaving cash profit flat for the first six months of the year and up 10% at the pre-tax level.

Boss Gavin Patterson heralded the positive impact of football contracts on the numbers. "Our Consumer business continues to perform well thanks to the impact of BT Sport where Premier League audiences are up around 45% on average," he said. "Fibre is also driving growth with one in three of our retail broadband customers enjoying super-fast speeds."

Quarterly revenue at the Consumer division grew by 7% to £1.1 billion, propelling cash profit up by 42% to £225 million. Growth in broadband and sports customers - BT added 88,000 retail broadband customers and 38,000 TV customers in the quarter - ramped up sales of broadband and TV revenue by 17%.

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A £71 million currency hit and less demand from the public sector clipped revenue at Global Services by 5% to £1.65 billion. But sales still grew fast in Asia Pacific, Latin America, Turkey and the Middle East and Africa, while lower costs and capital expenditure meant profit edged up 2% to £226 million.

However, price regulation from 1 July on Caller ID and certain service products wiped out a chunk of sales at the Openreach unit where both revenue and profit fell by 2% to £1.25 billion and £627 million, respectively. The impact of regulation in the quarter was only partially offset by 38% growth in fibre broadband revenue. And profit also fell sharply at the traditional Wholesale business, down a fifth at £125 million.

Looking forward, Patterson said: "Our fibre footprint has increased to more than 21 million premises and will continue to grow. We continue to see strong demand across the market for the faster speeds that fibre offers."

Aymen Azizi, a trader at Accendo Markets, blames the past year's share price stagnation and subsequent City downgrades on deepening pension liabilities and increasing premiums to secure TV content.

"Traders are starting to unwind positions in BT Group today as although this morning's trading statement may have exceeded forecasts it failed to mask the aggressive competition in the sector," he said.

BT shares have been largely range-bound for the past 12 months, trading between 350p and 421p. But a forward price/earnings (P/E) ratio of 12 is a discount to both BSkyB and the sector. There's a significant technical support level at 350p to watch out for, too (see chart).

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