BT Group Q3 preview: Where next for the BT share price?

When will BT Group release Q3 earnings?

BT Group will release third quarter earnings on the morning of Thursday February 3. This will cover the three month and nine month periods to the end of December 2021.

BT Group Q3 earnings preview

BT Group in the past has reported figures covering the first nine months of the financial year when it has released its third quarter updates in the past.

The company generated £10.31 billion in revenue in the six months to the end of September and analysts believe it generated another £5.42 billion in the third quarter. That means markets are looking for £15.73 billion in reported revenue for the nine months to the end of December, which would be down from £16.06 billion the year before.

Reported pretax profit is expected to total £1.55 billion in the nine-month period, marginally lower than the £1.59 billion reported the year before.

BT is, however, expected to break down adjusted figures for the third quarter, and by division.

Forecasts suggest its Enterprise division serving big businesses and the Global unit that provides security, cloud and networking services will see a year-on-year decline in both revenue and earnings, as they did in the first half.

The core Consumer business that has over 30 million mobile and broadband customers will deliver improved profitability despite a fall in the topline. Its Openreach broadband network, which a swathe of other broadband providers use to supply their customers, is the only segment forecast to see a rise in both revenue and earnings in the quarter.

Below is what is expected by analysts. Other and intra-group items have been removed and the figures have been rounded:

BT Group reaffirmed its full year guidance when it released its interim results, confirming it is aiming to deliver broadly flat adjusted revenue in the year to the end of March 2022, £7.5 to £7.9 billion of adjusted Ebitda and £1.1 to £1.3 billion in normalised free cashflow. That would compare to the £7.4 billion in adjusted Ebitda – marking a return to earnings growth – and the £1.5 billion of cashflow delivered in the last financial year.

It has also provided a glimpse into what to expect in the next financial year to the end of March 2023, when it will target adjusted Ebitda of £7.9 billion.

The main reason BT Group is hoping to return to earnings growth this year and then build on that momentum despite expecting broadly flat sales is the company’s aggressive cost-cutting plan. It has already delivered £1 billion in annualised savings 18 months ahead of schedule, prompting it to bring forward its £2 billion target to its 2024 financial year from its original goal of 2025. That will, however, cost around £1.3 billion to achieve.

It is also able to handle the current inflationary pressure better than most considering it said in January that customers were on average set to see their broadband and telephone bills rise by 9.3% this year, well ahead of current inflation rates. Meanwhile, Openreach benefits from the fact the prices it charges third-parties to access its broadband network automatically rise in-line with RPI inflation.

Over the longer-term, BT Group is aiming to boost cashflow by £1.5 billion before the end of the decade, more than doubling the amount BT expects to generate in the current financial year. That boost is expected to come from a £1 billion reduction in annual capex from the end of 2026 as the costly rollout of ultrafast full-fibre broadband peaks, with the other £500 million coming from lower operating costs as the shift to full-fibre nears completion toward the end of the decade.

Outside of the financials, investors will be keenly watching out for any commentary on Openreach after billionaire Patrick Drahi’s telecoms group Altice UK bumped-up its stake in BT to 18% from 12% in December to become the largest shareholder. Media reports have suggested he is applying pressure on the BT board to consider a spinoff of Openreach because he believes it is undervalued when combined with the rest of BT’s business. Still, management are expected to reiterate their belief Openreach should remain in BT’s hands.

Notably, while Drahi has said he is not looking to takeover BT, there is no denying he is building his stake and he has admitted he could table a bid for the company if another firm made a move and tried to takeover the business – although regulators seem defensive over the idea that BT could be subject to a foreign takeover.

Where next for the BT share price?

BT shares have been trending higher since late October and hit a 7-month high of 199p on the last day of January.

The recent uptrend accelerated after the 50-day sma returned above the 200-day sma two weeks ago, swiftly after moving above the 100-day. That bullish signal is reinforced by the bullish RSI, although this has slipped into overbought territory during that time, suggesting it needs to break above the 2022-high of 199p before it can target the 2021-high of 207p hit last June.

If the current ceiling holds and the stock moves lower, we could see shares slip toward the 50-day sma, which has acted as the floor for the shares since the start of November, at 174p. Beyond there, the 200-day sma of 170p comes into play before the 100-day at 163p.

Brokers have mixed views on BT Group’s prospects, with the 24 brokers covering the stock assigning an average Hold rating and a target price of 204.44p, some 5.5% higher than the current share price.

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