BT Group Plc – Serving Customers Needs and Delivering Values

BT Group Plc (LON: BT.A) is a fixed-line telecommunication company, based out of London. The group’s business is built around the clients, delivering value, and serving their needs persistently.

Financial Highlights – FY 2020 with Decent Net Cash Inflow from Operating Activities

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st March 2020, due to a decline in legacy products and the impact of regulation, the revenue declined by 2 per cent to GBP 22,905 million versus GBP 23,428 million in FY2019. The adjusted revenue declined by 3 per cent from GBP 23,459 million in FY2019 to GBP 22,824 million in FY2020. The adjusted EBITDA dipped by 3 per cent to GBP 7,907 million in FY2020 versus GBP 8,126 million in FY2019. The group’s PBT (Profit before tax) stood at GBP 2,353 million in FY2020 versus GBP 2,666 million in FY2019. The PAT (Profit after tax) declined to GBP 1,734 million in the financial year 2020 versus GBP 2,159 million in FY2019. The basic earnings per share declined by 20 per cent to 17.5 pence in FY2020 from 21.8 pence in FY2019. The adjusted basic earnings per share declined by 11 per cent to 23.5 pence in FY2020 from 26.3 pence in FY2019. The groups’ operating net cash inflow surged by 47 per cent to GBP 6,271 million in the financial year 2020 from GBP 4,256 million in FY2019. The capital expenditure stood at GBP 3,960 million in FY2020 versus GBP 3,963 million in FY2019. The net debt surged to GBP 17,969 million in FY2020 versus GBP 11,035 million in FY2019. The group did not pay any dividend for the period.

Share Price Performance

Daily Chart as of May 7^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

BT Group Plc shares were trading at GBX 105.392 at the time of writing before the market close (at 3:19 PM GMT+1) on 7^th May 2020 and down by 7.75% versus the previous day closing price. Stock's 52 weeks High is GBX 229.80 and Low is GBX 101.10.
 
Valuation Methodology

*Peers: Deutsche Telekom SA, Vodafone Group Plc, Renault SA, and Telecom Italia SpA.
 
Growth Catalysts
For the financial year 2021, the company’s transformational plans drive long-term growth, due to the cost transformation programme was on track; continuing to develop plans to simplify the processes and systems, and the Better Workplace Programme is the largest of its kind in the United Kingdom.
Conclusion
 
The company’s financial performance has declined moderately, though it was in line with the expectations in the financial year 2020. However, the company is in a strong position. It has launched new products for consumer and business segments.  For the financial year 2021, the company’s transformational plans drive long-term growth, due to the cost transformation programme on track. The group has been selling its selected operations, which will provide additional funds to the company to focus on its core operations. The network of the company is performing well and with decent capacity despite changing patterns in demand. BT is working closely with Government on multiple initiatives and providing connectivity to NHS Nightingale hospitals.

Based on the above rationale and the valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 102.95 (as on 7^th May 2020, before the market close at 10:20 AM GMT+1) with lower double-digit upside potential based on 1.90x NTM Price/Cash Flow (approx.) on FY21E Cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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