BT: a Stock of Two Halves

Analysts are impressed with BT's efficiency measures and broadband projects, but sceptical as to whether the company will recoup the cost of its television venture BT Sport 

Allan C. Nichols, CFA 28 August, 2013 | 9:18AM

While BT struggles to grow its revenue, the firm is doing a fantastic job of improving efficiency. The firm continues to reduce costs, enabling its margins to improve despite revenue declines, which we think is very impressive.

Additionally, the firm's revenue declines are diminishing with the retail division close to growing again and the Openreach division's external business actually growing year over year during its first fiscal quarter thanks to the higher take up of its fiber service. We think BT's fiber service will mostly offset revenue declines elsewhere in the retail division and provide growth in the Openreach division. Fiber is now available to 16 million premises in the U.K. with 1.7 million customers. The firm has also now won 29 regional bids in the Broadband Delivery UK, or BDUK, project and we expect BT will win all of the remaining ones. While this should provide some revenue growth, we project it will be at lower margins than the Openreach division's other revenue.

However, we are not as enthusiastic regarding BT's other new venture of taking on British Sky Broadcasting in television by launching its own sports channels. The firm has spent about £1 billion for content and launch costs.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BT Group PLC110.00 GBX1.99

About Author

Allan C. Nichols, CFA  is a senior stock analyst and international investing specialist with Morningstar.

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