Telecoms boost

BT shares surge on dividend hike and cost cuts

BT: inflection point

Shares in telecoms group BT soared after better than expected news from the company, including a hike in the dividend.

Investors warmed to new chief Allison Kirkby’s message that the company had “now reached the inflection point on our long-term strategy”. 

Shares in the FTSE 100 group surged 19.5p, or 17.2%, to 132.5p, the largest single-day rise in the company’s history. 

Ms Kirkby, who joined in February from Swedish telco Telia, said that the inflection is triggered by the company passing the peak point of its capital investment into its fibre broadband rollout and achieving its £3 billion cost-cutting programme a year early.

Allison Kirkby: sharper focus

She said BT’s transformation will see a sharper focus on customers in the UK, “by accelerating the modernisation of our operations, and by exploring options to optimise our global business,” implying further sales of overseas operations are coming. 

Free cash flow is expected to double over the next five years, enabling the board to increase the dividend, with a final dividend of 5.69p per share making a total of 8p, up 3.9% compared to the 7.7p payout a year ago.

The chief executive has set a new £3 billion target of gross annualised cost savings to be reached by the end of March 2029.

Adjusted EBITDA was 2% higher at £8.1bn while a £488m impairment charge meant pre-tax profit fell 31% to £1.19 billion from £1.73bn in the previous year on revenues that were just 1% higher at £20.8bn.

The group reported strong Openreach customer demand for fibre optic, with a net addition of 397,000 in the last quarter, and more than 4.8 million premises now connected.

Openreach female engineers
Openreach has seen strong demand

Ms Kirkby said: “BT Group built and connected customers to our next generation networks at record speed and efficiency over the past year, while continuing to grow revenue and EBITDA.

“Having passed peak capex on our full fibre broadband rollout and achieved our £3 billion cost and service transformation programme a year ahead of schedule, we’ve now reached the inflection point on our long-term strategy.

“This delivery and greater capex efficiency gives us the confidence to provide new guidance for significantly increased short term cash flow and sets out a path to more than double our normalised free cash flow over the next five years.

“This enhanced cash flow allows us to increase our dividend for FY24 by 3.9% to 8.0 pence per share. We’re also setting a further £3bn of gross annualised cost savings to be reached by the end of FY29.

“As we move into the next phase of BT Group’s transformation, we are sharpening our focus to be better for our customers and the country, by accelerating the modernisation of our operations, and by exploring options to optimise our global business. This will create a simpler BT Group, fully focused on connecting the UK, and well positioned to generate significant growth for all our stakeholders.”

John Moore, senior investment manager at RBC Brewin Dolphin, said: “BT has been under pressure for a while now, with growth more or less stalling in recent years. Today’s results show a continuation of that story, with revenues flat and profits falling.

“The challenge BT faces is managing its working capital requirements and the income it receives in a consistent manner that provides clarity over its future direction for shareholders and, arguably, customers.

“There have been some inconsistent moves – like divesting O2 and then buying EE, setting up a TV service which was subsequently sold – the results of which are still being felt today. But, if BT can prioritise its core business, realise Openreach’s full potential, and execute a more focussed approach then a meaningful turnaround is possible.”

Russ Mould, investment director at AJ Bell. said: ” “There is a surge of energy running through BT after the telecoms group announced it had reached an inflection point. New guidance for significantly increased cash flow, more cost savings and a higher dividend for shareholders all combined to deliver a bumper package of good news.

“It’s the kind of statement that could encourage a large number of investors to start reappraising the business. The market focus is very much on the future rather than the past, particularly as the latest set of results don’t exactly paint a picture of a company in its prime. Profit fell sharply, blamed on a variety of factors including higher costs.

“The positive share price reaction will have also caught some big investors off guard. There has been a notable increase in institutional investors betting against BT since September 2023, with the amount of stock on loan to short sellers rising from 0.5% to 2.74% over this period.

“BT has been criticised widely in the past for poor levels of growth and service and having high levels of debt, elements that tend to attract short sellers looking to profit from any decline in the share price.

“BlackRock, Canada Pension Plan Investment Board and AKO Capital are among the biggest short sellers of BT, according to FCA data, and they might be shocked at the new guidance unveiled alongside full-year results.

“Certainly, the share price is now travelling in the opposite direction they wanted, and the short sellers may decide to close out those trades if market sentiment has now improved for BT.

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