BT Group FY preview: Where next for the BT share price?

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Josh Warner
By :  ,  Former Market Analyst

When will BT Group release FY2022 earnings?

BT Group is scheduled to release full year earnings covering the 12 months to the end of March 2022 on the morning of Thursday May 12.


BT Group FY earnings preview

Analysts forecast adjusted revenue will fall 2.3% in the year to £20.88 billion, marking the fifth consecutive year that BT Group’s topline has declined. Notably, BT lowered expectations in February and said it was now expecting a 2% drop after originally hoping to keep revenue flat during the year, blaming the ‘delayed Covid-19 recovery and supply chain issues’.

However, adjusted Ebitda is forecast to rise 2.3% to £7.42 billion as higher profits from its Consumer division as well as Openreach offsets declines from its Enterprise and Global units. Notably, that sits below the £7.5 billion to £7.7 billion Ebitda guidance issued by the company. Pretax profit at the bottom-line is expected to rise 15.7% from last year to £2.08 billion.

Its cost-cutting efforts are expected to contribute to the higher earnings anticipated to be reported this week, with BT Group already having delivered over £1 billion in annual savings during the first half of the year, some 18 months earlier than planned. That prompted it to bring forward its goal to deliver £2 billion in annual savings by the end of the 2024 financial year from 2025. These savings are being made by making BT a ‘simpler’ business, winding down legacy propositions such as slower broadband and capped mobile plans, and digitising its proposition to speed up the customer journey.

Investors will be paying close attention to BT Group’s outlook for the new financial year considering it has said it will be a milestone for the business as it aims to grow its topline for the first time in six years and deliver adjusted Ebitda of at least £7.9 billion, promising to deliver ‘sustainable growth from this point forward’.

However, markets remain unconvinced about that outlook ahead of the earnings considering analysts have only pencilled-in £7.83 billion in adjusted Ebitda this year. Investors will want reassurance this week that BT Group is through the worst of the disruption and on course to grow revenue and hit its earnings target when it releases results this week.

Openreach is where the momentum is in the business. This is the company solely responsible for running the UK’s broadband network that hundreds of other telecoms companies and carriers, from Sky to TalkTalk, use to supply internet and phone lines to customers. The company is run at an arm’s length of BT Group and is independently governed due to its monopoly over vital infrastructure, but it remains the heart of BT Group and offers the company a unique advantage over its rivals.

The momentum is being driven by the rollout of FTTP – more commonly known as ultrafast full fibre broadband. While BT enjoys many benefits by owning Openreach, it also means it is responsible for upgrading the national network. This does not come cheap, and BT Group has been pressured to rollout full-fibre as quickly as possible to help drive the economy into the digital age. The company hooked-up over 50,000 premises to full-fibre every week during the first nine months of the financial year and should have connected its seventh million site before the end of March. 

Meanwhile, 5G is the other catalyst for BT Group. Its phone carrier brand EE is regarded as one of the most reliable services and had around 6.4 million 5G customers at the end of 2021. Still, its 5G network is currently available to just 40% of the UK population. This means BT still has a big job on its hands deploying faster connectivity, but it also means there is plenty of upside potential going forward as people pay more to upgrade over the coming years. BT Group has said 5G should cover around half of the UK population by 2023. As it prepares for a new 5G-driven era, BT Group has recently announced it plans to make EE the core consumer-facing mobile brand and that the BT brand will take a back seat in order to streamline operations, improve efficiency and save more money.

Once it is through this period of intense capital spending upgrading to full fibre broadband and 5G is completed, BT Group is set to see a significant improvement in free cashflow as capital expenditure will decline and it will reap the benefits from its investment. It will mean BT Group will offer a converged network able to offer reliable and superfast connectivity anywhere in the country. BT briefly considered bringing in external partners to help fund the rollout of full-fibre but then decided to retain complete control and pay for the deployment itself after finding the cost of connecting each premise has fallen significantly and that people are upgrading quicker than anticipated once they are hooked-up.

BT has said it expects normalised free cashflow to improve by £1.5 billion by the end of the decade compared to the £1.1 billion to £1.3 billion BT Group is targeting to deliver this week. Consensus figures suggest cashflow will have come in at the top-end of that range at £1.28 billion, which will be down from the £1.46 billion reported in the last financial year. However, analysts believe cashflow will start to improve once again in the 2023 financial year.

BT Group spent around £4.9 billion in capital expenditure during the recently-ended financial year and the company said it expects this to dip to £4.8 billion in the 2023 financial year, down from the £5 billion previously forecast. BT Group has said the peak of its full-fibre rollout will be in late 2026, after which it expects capital expenditure to fall by around £1 billion– which will deliver a corresponding boost to its cashflow. The other £500 million in additional annual cashflow BT Group is pursuing is due to come from its cost-cutting efforts.

BT Group suspended dividends in the 2021 financial year amid the uncertainty brought about by the pandemic and so it could funnel more cash back into the business and accelerate the rollout of full-fibre broadband. These have now restarted and investors were paid a 2.31p interim payout, which should be followed by a final payout of around 5.39p this week to take the total dividend for the year to 7.7p. This has been rebased from pre-pandemic levels, but BT Group plans to maintain a progressive policy going forward.


Where next for the BT share price?

BT Group shares hit an 8-month high in February but have struggled to find higher ground since then and today trade at 174.60p.

The 50-day moving average has recently slipped below the 100-day sma to provide a new bearish signal, although a fall below the 200-day sma would be more significant. The RSI sits in bearish territory to suggest the stock could fall back towards the 2022-low of 153.70p before approaching oversold territory and rebounding. This level must hold to avoid opening the door to sub-136p that we saw last October. In the meantime, the 200-day sma at 172p should be treated as an initial floor for the stock and, if that fails to hold, the 157.40p level of support we saw last November and December.

We have seen trading volumes fall recently, with the 5-day average volume at time sitting over one-fifth lower than the 100-day average, to suggest momentum that has pushed the stock lower is waning. The stock needs to recapture the 50-day and 100-day moving averages at 183p to signal a reversal is on the cards, but it will need to surpass 190p and then the April high of 194p to break out of the current downtrend. From there, it can bring the 2022-high into its crosshairs and look to move above 200p.

Notably, the 24 brokers that cover the stock believe the stock can climb as high as 210.50p over the next 12 months, which is over 20% above the current share price and would mark the highest level for the stock since October 2019.


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