BT Group PLC


BT Group Plc offers little value to investors. It will remain market perform at best for years (decades) to come. Management is overpaid and underwhelming, but this too will persist. The market is beginning to recognize this with the share price falling 8% on the numbers. The company trades on a pe = 10.4x and paid a TTM dividend of 6.77% in Mar 2018.



Date: 14 jun 2018

Was not expecting to post an update so soon. However, 2 downgrades in 2 days does reflect well for any company.

June 12 – S&P Global Ratings on Tuesday cut its credit rating on BT Group , citing strict oversight by British telecom regulator of its broadband networks.

BT’s Openreach network has come under the scrutiny of Ofcom, which said in March it would cap the amount the network can charge rivals to use its entry-level superfast broadband service. The downgrade to ‘BBB’ from ‘BBB+’ was also due to increased competition in the consumer broadband market and Brexit-related uncertainties, S&P said in a statement.

Jun 13 – Fitch Ratings has downgraded BT Group plc’s (BT) Long-Term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB+’.

The rating downgrades reflect our expectation of an increase in BT’s leverage to a level that is more consistent with a ‘BBB’ rating and that the company may be free cashflow (FCF)-negative after dividends for the next three to four years. Fitch expects BT’s funds from operations (FFO)-adjusted net leverage to increase by 0.6x over the next 12 to 24 months to 3.1x. The increase is driven by a combination of factors that include sizeable pension contributions, reduced FFO and higher capital expenditure for both mobile spectrum investments and increased roll-out of fibre in the UK.



Date: 10 May 2018

Final Results: 10 May 2018

Comment from the CEO:

  • “BT delivered a solid set of financial results in the fourth quarter, with growth in our consumer divisions offset by declines in our enterprise businesses, due to both challenging market conditions and our decision to exit lower margin business.
  • “We continue to invest for growth, having now passed 1.5m premises with our ultrafast network and securing 40MHz of 3.4GHz spectrum suitable for 5G mobile services.
  • “Our integration and restructuring activities remain on track. The integration of EE into BT is delivering run rate cost synergies of £290m. Our restructuring programme has removed over 2,800 roles and delivered savings of £180m during the year.

Summary of comment:

Long winded and empty. Below will look at the numbers which are convoluted (not a good sign for investors).



Below is a key summary

Fourth quarter to Year to
31-Mar-18 31-Mar-18
Reported measures £m Change6 £m Change6
Revenue 5,967 -3% 23,723 -1%
Profit before tax 872 98% 2,616 11%
Basic earnings per share (p) 7.3 92% 20.5 7%
Net cash inflow from operating activities 746 £(845)m 4,927 £(1,247)m
Adjusted measures
Change in underlying4 revenue excluding transit -1.40% -1.00%
Adjusted4 EBITDA 2,083 1% 7,505 -2%
Adjusted4 profit before tax 1,046 1% 3,444 -2%
Adjusted4 basic earnings per share (p) 8.8 5% 27.9 -3%
Normalised free cash flow4 1,026 £192m 2,973 £191m
Net debt4 9,627 £695m


Summary of results:

The adjusted measure note refers to before specific items. Once the investor has removed the specific items the picture is worse.

  • Declining revenue, -1%
  • Declining EBITDA, -2%
  • Declining profit, -2%
  • Declining EPS, -3%

There is no measure where the business metrics look good.


Triennial pension funding valuation

BT and the Trustee of the BT Pension Scheme (‘BTPS’, or the ‘Scheme’) have reached agreement on the 2017 triennial funding valuation (the ‘2017 valuation’) and recovery plan. The funding deficit at 30 June 2017 is £11.3bn, with the increase from the 2014 valuation mostly due to a fall in long-term real interest rates.

The deficit will be met over a 13 year period, maintaining the remaining period of the previous plan.

The deficit contributions have three components:


1.   Payments by BT within the 3 years to 31 March 2020 totalling £2.1bn:

  • –     This is equal to the amount due over the same period under the previous recovery plan
  • –     £850m of this was paid in March 2018 and the remaining £1,250m is to be paid by 30 June 2019


2.   A further £2.0bn contribution, due to be funded from the proceeds of the issuance of bonds, which will be held by the BTPS. The bonds will be:

  • –     issued as soon as practicable under BT’s Euro Medium Term Note Programme
  • –     sterling denominated and have maturities ranging from 2033 to 2042
  • –     £1.0bn fixed interest and £1.0bn CPI-linked


3.   For the 10 years from 1 April 2020 to 31 March 2030, BT will make annual payments of around £900m typically by 31 March each year:

  • –     £400m of BT’s contribution in the financial year 2020/21 will be made by 30 June 2020

Summary of pension:

The large pension cash drain continues and in, in fact, larger than previous. Given that the market cap of BT is 24 billion, the deficit represents over 45% of the current market valuation. This will remain a drain on the company (shareholders mainly) for the next 13 years, but probably more.




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