BT Group Delivers With Some Shadows; Enterprise Segment and Strikes Could Hinder Performance

We are satisfied with the results printed by BT Group in its first fiscal quarter, with 1% and 2% growth in sales and EBITDA, respectively. The consumer and Openreach divisions were the main drivers of growth, offset by the enterprise unit. Despite the results being acceptable and management maintaining guidance, shares are down more than 7% at the time of the writing due to weak performance in the enterprise unit, which had a EBITDA margin decline from 33.3% one year ago to 26.3%. This was due to costs being hit by inflation, but also an inability to pass price increases on to customers. Management expects to turn this trend around during the year, but the enterprise segment has been challenged for a long time. We maintain our GBX 230 fair value estimate for now, given our 2023 EBITDA forecast is conservative and Openreach, BT’s largest division, is performing better than our expectations. However, we will continue to monitor the performance of the enterprise division through the year.