BT beat market expectations by reporting a 13 per cent rise in second quarter underlying pre-tax profits and the telecoms group also raised its full year cash profits guidance, from £5.6bn to £5.8bn. Chief executive Ian Livingston now expects free cashflow to top £2bn, two years earlier than planned, which has helped reduce net borrowings by 12 per cent to £8.7bn in the past year.
BT Openreach benefited from increased demand for bandwith and broadband by end-users which underpinned a 6 per cent increase in cash profits. But the real growth came from Global Services, which supplies solutions and networks to global companies, posting a 70 per cent increase in cash profits to £268m. This was mainly driven by cost cutting, but the business has also been winning orders - total order intake rose from £1.6bn to £2.1bn year-on-year - including contract extensions with the Ministry of Defence and Network Rail.
In retail, net new broadband customers of 114,000 puts BT's market share at an impressive 45 per cent, while the high-speed fibre rollout (Infinity) is adding 4,000 customers per week. But BT Vision's 24,000 sign-ups looks a poor return given its huge advertising support; the customer base is still just 520,000.
Evolution Securities expects full year EPS of 15.9p, rising to 19.3p in 2011/12.
|ORD PRICE:||166p||MARKET VALUE:||£ 12.8bn|
|DIVIDEND YIELD:||4.2%||PE RATIO:||12|
|NET ASSET VALUE:||*||NET DEBT:||£8.7bn|
|Half-year to 30 Sep||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
*Negative shareholders' funds
BT shares have had a strong run since we rated them good value (136.25p, 21 July 2010), but still only trade on a prospective PE ratio of 8.6 and yield over 4 per cent. That still represents decent medium-term value.