For multiple quarters BT’s (BT.A) consumer business has provided most of the telco group’s scant growth. But today’s third quarter results pose the question; has consumer progress peaked?
In the three months to 31 December, flat revenues in the consumer division at £1.26bn reflect continued voice line losses that offset progress from its acquired mobile business, EE.
Even its expensive investment in live broadcast sport seems to have run out of steam as the company has seen the number of TV subscribers fall by 5,000 to 1.8m in the quarter. That compares to a net increase of 52,000 viewers in the same quarter in 2016.
REVENUES AND PROFITS ARE DOWN
Overall group revenues slipped 3% to £5.97bn as market challenges continue, including intense competition, dismal declines in its global services division, and fibre network investment.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) reversed 2% to just shy of £1.83bn.
BT sees these figures as basically on track, which explains why it is making no changes to full year to 31 March 2018 guidance. That calls for ‘broadly flat’ underlying revenues, around £7.5bn to £7.6bn of EBITDA and free cash flow in the £2.7bn to £2.9bn ballpark.
WILL SPORT BE A TURN ON OR TURN OFF?
What will be closely watched by investors ahead of those annual results is the outcome of the next Premier League broadcast rights packages, with the bidding process soon to begin.
It took a £1.2bn bid from BT, £300m more than in 2013, to see off Sky (SKY) for the Champions League rights, although a recent cross-platform broadcast agreement between the pair suggests less extravagant price inflation this time round.
But there’s also the Amazon wildcard, widely speculated to be interested in taking at least one of the seven Premier League packages offered.
‘We’ve seen what happens when Amazon appears on the scene,’ points out Neil Wilson, senior market analyst at ETX Capital.
‘BT may be happy to be number two to Sky, but it could fall further down the pecking order if Amazon and others muscle in,’ the analyst says.
Bidding for the live English Premier League rights kicks off next week.
IMPORTANT INCOME QUESTIONS
In the meantime, other longer-term concerns dog a share price that is, after today’s 6% decline to 241.05p, trading at a five year low.
For the moment analysts seem reasonably relaxed about future dividends. Consensus forecasts suggest a 15.8p per share payout this year to 31 March 2018, implying about 2.6% growth. Similar dividend growth is anticipated in 2019 and 2020.
But that could change. Yesterday’s announcement of extra investment to roll out faster broadband deeper and wider across Britain could put a strain on free cash flow, especially if regulatory pressure pinches its ability to increase prices.
But the pension looks like the group’s biggest threat just now. The triennial review of BT’s pension is ongoing and the rough £14bn scheme funding black hole needs a solution, one that doesn’t crimp the payout.
