BT sports a new look

Demand for broadband and live sports helped BT Group (BT.A) dial up revenue growth of 2 per cent, its highest rate in five years, for the three months ended December 31. Pre-tax profits rose to £722m, up 8 per cent year on year, as customers continue to embrace its phone, TV and internet packages. The UK’s largest phone company also lifted its full-year guidance: it now expects adjusted cash profits to be at the upper end of the £6-£6.1bn range.

One key figure for followers of media and telecom companies is the increase in customers for the BT Sport channels to 2.5m - a 25 per cent gain over the preceding quarter. That will encourage BT, which in November outbid British Sky Broadcasting (BSY) for the Champions League and Europa League rights from 2015, to bid aggressively for the Premier League rights, which come up for auction between November and next February. As BT Sport is free to BT’s broadband customers, and homeowners seem to prefer a single telecoms provider, securing the rights would likely fuel growth in both BT's broadband and related services.

But BT’s new strategy is proving costly. It has agreed to pay £897m for three seasons of European football, on top of investing £1bn in other broadcasting rights. Moreover, its heated rivalry with BSkyB is likely to further inflate content costs and push prices down. BT’s management say they won’t agree a wholesale deal with their rival, and these latest results may steel their resolve. The scene is set for an expensive match-up this year - one that will prove lucrative for the winner.

Bank of America Merrill Lynch says…

Buy. BT has finally returned to top-line growth, with revenue beating consensus by 1.8 per cent. Its overall performance was strong, especially the addition of 339,000 fibre-broadband customers, taking its base to 2.4m, and net gains in broadband subscribers. With a plug-and-play fibre option now available, both groups should continue to grow. With BT continuing to gain traction, we raise our price target from 400p to 430p, and expect adjusted full-year pre-tax profits of £2.28bn and EPS of 25.3p.

J.P.Morgan Cazenove says…

Overweight. We are supportive of BT’s strategy, although the company does face significant revenue challenges caused by the decline of its fixed-line business. It could also suffer large, long-term increases in content costs, and renewed price competition in the UK fixed-line and broadband markets. Yet BT’s content strategy and investment should drive growth. Further reducing its pension deficit may also have a positive effect on shares. We expect full-year pre-tax profits of £2.23bn and EPS of 25.16p.