BT Beats Profit Estimates After Lockdown Spurs Fiber Demand

Written by
Thomas Seal
Written by

Thomas Seal

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(Bloomberg) -- BT Group Plc's profits shrank less than expected after customers upgraded broadband contracts at a record pace to help them survive multiple U.K. lockdowns.

The London-based carrier reported adjusted earnings before interest, tax, depreciation and amortization of 1.88 billion pounds ($2.56 billion) in the three months to Dec. 31, versus a Bloomberg-compiled average analyst estimate of 1.84 billion pounds and down from 1.98 billion a year ago.
Revenue shrank 5% in the period to 5.48 billion pounds, dropping in every main division except Openreach as the pandemic shuttered large parts of the U.K. economy like BT's stores and pubs showing BT Sport.

Key Insights

Demand for fiber connections grew to a record at BT's infrastructure unit Openreach as customers stuck at home due to restrictions to contain the pandemic stoked demand. However, the consumer division suffered from a hit to roaming charges and lower mobile phone usage.
The numbers will buoy Chief Executive Officer Philip Jansen as he heads into a crucial few months for BT. Regulator Ofcom will publish new rules before April determining how much profit it can make on its 12 billion pound fiber network investment.
In coming weeks BT is also due to spend hundreds of millions of pounds on Premier League soccer rights and on 5G airwaves. It's also hammering out terms to close the shortfall in its pension fund, the U.K.'s largest in the private sector. Then, pending regulatory approval, rivals O2 and Virgin Media are expected to merge in the summer.
Jansen said the company was on track to deliver on its forecast for 7.9 billion pounds of Ebitda for the 2022-2023 year, and that there would be no material impact from Brexit.
Jansen's strategy is to carve out 2 billion pounds gross annual costs with a restructuring and invest in 5G and fiber, so BT is poised to use its new ‘Digital' unit to push into technology markets like cybersecurity and the internet of things. He also ditched the dividend until the next financial year, promising his investments will yield future growth.

Market Reaction

BT shares gained as much as 4% in London. The stock has dropped 21% in the past twelve months to Wednesday, versus a 13% fall in the FTSE 100.
Of the 23 analysts surveyed by Bloomberg, 14 rate the stock Buy, 6 Hold and 3 Sell.