Tough trading at BT pushes shares to new lows

Waning demand for TV is particularly bad news considering how much it has cost BT. The group’s £960m Premier and Champions League football deal contributed to rising expenditure in the consumer division, meaning adjusted half-year cash profits here dropped 3 per cent to £478m. The Premier League comes up for auction again at the end of this year and is expected to command a record payout. If BT can’t afford to cough up, it could be in danger of losing customers.

But the consumer division’s troubles pale in comparison with global services. Here, revenues and adjusted cash profits were down by 10 per cent and 39 per cent, respectively. In part, the decline is a hangover from the troubles in the Italian business. But the group also suffered a drop in equipment sales and lower demand for corporate telecom connections in the UK.   

Investors can take solace in the fact that BT has hung on to its dividend, which now has a forward yield of 6.3 per cent. But its status as an income stock is becoming increasingly tenuous. Adjusted free cash flow – which fell from £1.34bn to £1.25bn in the first half – is earmarked primarily for “value enhancing re-investment”. That is a worrying prospect considering the enormous capital expenditure requirements of network upgrades and sports rights. The group also needs to address its £7.7bn pension deficit, which is currently undergoing its triennial valuation amid trustee demands for more cash.

Even EE – the only division that reported adjusted cash profit growth – gave BT a headache in the reported period. The group was obliged to pay £225m to EE’s former owners (T-Mobile and Orange) under the terms of the warranties they were issued when they sold the mobile business in exchange for BT equity in 2015.

Broker Numis expects adjusted EPS to fall to 27.9p in the year to March 2018, from 28.9p in FY2017.