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Telecoms giant, BT, has seen its share price slip 4.6 per cent after it released disappointing third quarter results that were slightly below expectations.
Revenue for the third quarter has declined three per cent and core earnings have fallen four per cent leaving the telecoms operator’s share price at 163.80p at the time of writing. Perhaps more worryingly for investors though is Chief Executive Officer, Phillip Jansen’s declaration that BT will take a £500 million pound hit over the next five years due to the Prime Minister’s decision to restrict Huawei’s involvement in the UK’s broadband network. The Chinese provider will be banned from the core of new wireless networks and its market share in 5G Technology and fibre-to-the-home will be limited to 35 percent. BT has not received a good reception for months – in fact its share price has taken a 20 per cent nosedive since the General Election, so can it bounce back?
Concerns remain about the multi-billion-pound investment that the communications stalwart has poured into rolling out full-fibre broadband. BT said its current full fibre build had reached 2.2 million premises, but this is still behind on its target of four million by March 2021 and the expected nationwide rollout by 2025. Analysts have previously predicted that this means capital expenditure of an additional £500m per year and some have suggested that a dividend cut of around 20 per cent is the only way to meet these demands.
Deutsche Bank had already issued a ‘sell’ rating for BT shares, in early December highlighting the increased capex demands and the intensity of competition as factors in its guidance. It has now cut its target price to 157p after these latest results, saying that “the share price has fallen but risks have risen.”
The telecoms group is also facing further broadband competition as it was revealed that Comcast-owned Sky and Virgin Media are reportedly talking about a joint venture to rival BT’s Openreach division.
As well as the broadband saga, BT Is facing a number of other pressures – its average landline revenue fell by four per cent and its mobile contract revenue fell by five per cent.
Analysts, Hargreaves Lansdowne think BT has some tough challenges ahead, pointing to the limited returns for investors within the Openreach division which Phillip Jansen has identified as his chief priority, the tough smartphone market and the company’s multi-billion-pound pension deficit. It did find some positives though in BT’s proven track record at bundling home, mobile and broadband together and it highlighted that with the right marketing in place, OpenReach is ultimately potentially profitable.
BT shares currently trade on 7.2 times expected earnings and offer a dividend yield of 7.3 so if Jansen can turn things around, the stock could deliver good gains for investors, but it hinges on some tangible progress soon to restore confidence.
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