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Last Seen: 3 Feb '20
Posted on 23 November 2018, 4:53 AM

BT group plc, a buy at the current levels

Topics: Analysis
Other Insights on Related Shares: 0HKT.L

BT group plc is a buy at the current price. The stock finished trading on the London stock exchange at 254.0p, down by over 1.33 percent compared to the last close. In terms of technical analysis and charting, the stock has been on a rising trend over the past few months and we expect the uptrend to continue in the coming days as well.  The stock has been constantly making higher highs and lower lows which further confirms the bullish trend of the stock. The stock has also been trading above its 20-day moving average (DMA), 50 DMA and 100 DMA of 252p, 240p and 230p respectively. Trading above both short term and long-term moving average is also a good sign for the bulls. The immediate support and resistance lie at 264p and 250p respectively. For a continued-up move, a breakout will come if the stock would surpass 264p and trade above that for some time. However, a breach below 250p may take the stock to the lower levels. Therefore, traders or investors are advised to keep an eye on the respective levels and accordingly take their position.


Let’s throw some light on the latest financial results of the company. The company announced its first half yearly results 2018-2019 on 1st November 2018. As per the results, the company had reported the revenue of £11.588 billion in H1’19, down by 2% because growth in the company’s consumer business was offset by regulated price reductions in Openreach and declines in its enterprise businesses. However, the company’s reported profit before tax and adjusted EBITDA was up by about 2% because of higher volume and mix of high-end smartphones in its consumer business and restructuring related cost savings. Although, there was a decline in net operating cash flows because of £2bn contribution to BTPS.


The Company’s CEO, Gavin Patterson commented on the results, “We continued to generate positive momentum in the second quarter resulting in encouraging results for the half year. We are successfully delivering against the core pillars of our strategy with improved customer experience metrics, accelerating ultrafast deployment and positive progress towards transforming our operating model.

“In Consumer, we continue to see strong sales of our converged product, BT Plus, and have seen good mobile sales following new handset launches. Last month EE demonstrated 5G capability from a live site in Canary Wharf. We have maintained momentum in our enterprise businesses despite legacy product declines.

“On 1 October we completed the transfer of 31,000 employees into Openreach, a key part of fulfilling our DCR commitments. Openreach has signed up the majority of its major and a number of its smaller communications providers to its new volume related discounts which should increase average broadband speeds across the UK. We are making positive progress on the key enablers to ensure that we can secure a fair return on our FTTP investment, and are ready to expand the FTTP programme up to and beyond 10 million premises if the conditions are right.

“Our strategy is delivering, with benefits evident from the steps we’ve been taking to simplify and strengthen the business and improve efficiency. Despite increasingly competitive fixed, mobile and networking markets and continued declines in legacy products there is no change in our overall outlook for the full year. Based on current trading, we expect EBITDA to be in the upper half of our £7.3 - £7.4 billion range.



Earnings outlook:


We have revised the company’s estimates post its latest half yearly results. Based on the above discussion, the management guidance and our own estimates, we estimate BT Group Plc. 2019 revenue will be £27.792 billion (£23.723 billion for fiscal 2018) and the operating profit will be £3.613 billion (2018 operating profit was £ 3.381 billion). Our estimates are conservative and assume 5% year-over-year growth in sales and a margin for earnings before interest and taxes (EBIT) of 14%. In the past fiscal years also, operating profit margin on the topline has been in a range of 13%-20%. 



From 2014 through 2018, BT Plc. has traded at an average enterprise value by sales multiple of 6.5x. That assumes a multiple of 5.5x to calculate the target price. Based on this ratio and on estimated 2019EBITDA, the stock price target is 306 pence.



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