(BT-A.L) BT Group PLC Buy/Sell

James Ashton , writing in yesterdays Sunday Times, has written

'Ian Livingston is half-way through a crucial 12 months at BT. Before long, he has to show that he has cleared up the shambles left behind by Ben Verwaayen, his predecessor as chief executive, and move the company on. Otherwise, the plain-speaking Scot is under no illusions that he, too, could be facing the exit.

Unlike Verwaayen, Livingston would hate to promise before delivering. The fact that he managed to grow the topline against the odds last quarter sent BT shares spinning upwards in July. Stand by for more good news when the telecoms company issues half-year results on November 12, although sales are expected to decline this time.

All eyes will be on BT’s Global Services (GS) arm, where profit warnings got Livingston into a mess in the first place. Slowly but surely, former finance director Hanif Lalani is getting to grips with it. More than 7,000 jobs have been stripped out so far during 2009. Contracts are being renegotiated and bits and pieces from GS’s enterprises division in France and Germany have quietly been sold off to tidy the portfolio. More will follow as it concentrates on serving UK corporate customers and multinationals.

GS struggled with an unrealistic margin target. Now the focus is on cash and stanching the outflow that stood at £459m in the first quarter. Across the group, Livingston is aiming for £1 billion of free cashflow this year. Analysts say that figure is eminently beatable.

It wasn’t so long ago that BT was being linked to a rights issue to repair its balance sheet, which has £10.5 billion of debt. If it can squeeze out more cash, then hopes will be raised that its full-year dividend could be increased just a year after it was slashed.

Cost savings should also pleasantly surprise. BT is targeting “well over” £1 billion of savings. Most followers have pencilled in nearer £1.3 billion.

There are several negatives. Small business customers are spending less in the recession, which could affect the retail division. An agreement with the pensions regulator on the size of the company’s pension deficit is unlikely to be concluded this year. And once BT is back on an even keel, questions will resurface about where growth will come from in future. Nevertheless, the shares have rallied in the past month, outpacing the wider market for the first time in a year. At 131.3p, they still stand 6% down on a year ago. Bernstein Research analysts have set a fair value price of 150p they think BT could achieve in the next six to 12 months. Livingston would never say it but that looks a little conservative. '

Things might be looking up!