The BT Group [BT] share price is up roughly 1.5% year-to-date at around 175p, having traded choppily in the first four months of 2022. With high inflation set to boost revenue and with takeover rumours continuing to circulate, could shares in the FTSE 100 telecoms company soon head back towards last June’s 52-week high of 206.70p?
Pros and cons for BT as inflation soars
For BT, the rising cost of living spells both good news and bad. On the one hand, inflation is likely to increase revenue per customer. BT raises prices in line with the consumer price index (CPI) measure of inflation, plus about 4%.
With CPI running at 7% and rising, BT’s customers are therefore likely to see bills rise by at least 11% this year. With rival operators including Virgin also increasing prices by a similar amount, many customers may have little option but to cough up, though customers on the lowest incomes have been told that their tariffs will not increase.
On the other hand, however, as pay rises fail to keep up with surging prices, the decline in consumers’ spending power may force many to cut back on non-essential purchases and subscriptions. That could bring about a Netflix-style fall in subscriber numbers for BT’s pay-television service BT Sport, and could possibly impact other areas, including landlines, broadband and mobile.
Rising costs also present a challenge for BT. The group, which owns mobile provider EE, recently said that customers were using more data than before, forcing it to increase spending on network maintenance and capacity expansion.
Incidentally, EE – which was formed from the merger of France’s Orange and Germany’s T-Mobile in 2012 and was acquired by BT in 2016 – is set to become the group’s main customer-facing brand, after the company announced in April that BT would no longer be the flagship brand in future marketing campaigns aimed at consumers.
Takeover speculation hasn’t gone away
As we wrote back in February, BT has been a potential takeover target for some time. Altice, the company run by French telecoms mogul Patrick Drahi, increased its stake in BT to 18% in December.
Under UK financial rules, Drahi will be allowed to launch a full-blown takeover bid after the expiration of a six-month no-bid clause on 14 June, although the investor has claimed he’s not interested in gaining full control of BT in the near term.
In any case, a takeover bid would likely face several hurdles. With BT playing a critical role in the UK’s broadband and mobile infrastructure, the UK government has said it would “not hesitate to act” to protect BT from a foreign takeover if necessary.
BT Sport to be spun off?
BT’s pay-TV division has also been the subject of much speculation, with a rumoured £580m bid from US streaming company Dazn eventually coming to nothing. In a fresh development, BT announced in February that it is in talks with Eurosport owner Warner Bros Discovery to create a joint venture.
The 50-50 venture would unite BT Sport and Eurosport in “a stronger and simplified combined sport offering in the UK and Ireland,” according to the president and CEO of Discovery’s streaming and international division, Jean-Briac Perrette.
BT underlines progress on broadband and 5G
BT’s shares fell to three-month lows in early March after third-quarter results – covering the three months to 31 December – disappointed some investors. That was despite better-than-expected numbers, with adjusted EBITDA of £1.96bn lifting nine-month EBITDA to £5.71bn. However, total revenue for the first three quarters was £15.67bn, down 2% versus the year-ago period.
Expectations for EBITDA in the year to the end of March 2022 are for a number between £7.5bn and £7.7bn. In the year to the end of March 2021, EBITDA was £7.4bn.
BT stressed that its 5G build is on track, and added that its broadband fibre-to-the-premises (FTTP) rollout had reached 6.5m properties, with 662,000 premises serviced over Q3 at rate of over 50,000 premises per week.
BT is aiming to roll out full-fibre broadband to 25m UK homes by 2026. The project will see the company benefit from government incentives to deliver faster internet connections around the country, providing BT a guaranteed return on its investment.
As the company prepares to release its full-year results at 7am on Thursday 12 May, investors will be hoping that the 5G and broadband rollouts are continuing apace, and that any potential negative impact from the cost of living crisis can be kept to a minimum. If subscriber numbers dipped in Q4, an update on the BT Sport venture may sweeten the pill.
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