The BT Group share price has been on a downward trend since reaching a 52-week high of 206.70p on 23 June. Despite being up 40.4% in the past 12 months, as of 2 November when it trended around 142p during intraday trading, the BT share price is down 5.8% in the past month.
There is a lack of positive sentiment around the BT share price ahead of its half-year of 2021/2022 earnings report, due on 4 November. This could partly be down to the scale of investments in its fibre and 5G infrastructure rollout. BT has a target of rolling out its Fibre to the Premises (FTTP) network, also known as Ultrafast Full Fibre, to 25 million homes by the end of 2026. The company also hopes to expand its 5G network coverage to 90% of the UK by 2028.
While the group expects to fund the build through internal reserves and a joint venture, it comes at a great expense. The investment might pay off in the long term, but there are concerns that it could reduce profitability in the near term.
BT share price and earnings fall amid pressured capital
In the three months to the end of June, BT’s capital expenditure was £1.5bn, up 63% from the £927m spent in the previous quarter. Despite adjusted EBITDA climbing 3% year-on-year to £1.8bn, pre-tax profits were also down 4% at £536m.
As a result, revenue for the quarter was down 3% at £5.1bn. Its consumer and network maintenance segments, which include Openreach, saw year-on-year growth rates of 1% and 5%, respectively, but global revenue and EBITDA fell 21% and 28% year-on-year. The poor performance of the latter was down to overseas projects being delayed by customers.
Although there were some bright spots in the most recent earnings, its “eye-watering” capital requirements are a problem, William Ryder, equity analyst at Hargreaves Lansdown, is quoted as saying by This is Money. “Overall, this quarter showed how hard it can be to get ahead in telecoms,” Ryder said.
Looking ahead to its half-year 2021/2022 results, investors will be hoping BT reports a reversal in its global segment. This would likely improve adjusted EBITDA and mitigate the impact of ongoing capital spending.
Sales goal for BT Sport
Investors will also be looking for an update on the sale of BT Sport, the company’s broadcasting division. ITV had previously been in talks for a takeover but has since pulled out. The frontrunner is now subscription video streaming service DAZN.
“The [BT Sport] division certainly adds value to its consumer business, but it’s not adding subscribers as quickly as management would like, and with its main competition being Sky, doesn’t have as broad a range of content, and sports rights aren’t exactly cheap these days,” Michael Hewson, CMC Markets’ chief markets analyst, commented.
“It also remains an expensive luxury for a company that needs to spend a lot of money boosting its infrastructure in the coming years,” added Hewson.
Risk of outside bids
Beyond the company’s half-year earnings, investors will also be keeping a close eye on whether European telecoms investor Altice makes a play for BT. Its founder and majority stakeholder Patrick Drahi acquired a 12% stake in the group for £2bn back in June. A binding agreement that blocks Altice from bidding for BT before 10 December is currently in place.
According to a Sky News report, BT has been shoring up its defences in recent weeks in anticipation of a potential bid. The company has appointed an advisory firm to work alongside Goldman Sachs, which itself was hired in August 2020 to defend against potential bidders.
The BT share price rose by around 6% briefly following the news report on 26 October. As of 2 November, the stock is up 5% year-to-date.
BT clearly has a long-term game plan, but the fate of BT Sport, heavy expenditure, and the potential of Altice’s bid mean investors will likely be paying close attention to the first-half earnings report.
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