BT Group Earnings: Fares Well in 2023; Revenue Increases 2% and EBITDA Up 3%

Once again, we liked how BT Group BT.A is doing in a complicated macroeconomic environment. Results were slightly ahead of company-complied consensus expectations and shares are up 5% early on Nov. 2. The consumer and Openreach divisions continue to lift revenue and EBITDA at the group level, which grew 2% and 3% this quarter to GBP 5.3 billion and GBP 2.1 billion, respectively. BT Group and the remainder of U.K. telecommunication companies are doing well in managing inflationary pressures by passing on price increases to customers. Postpaid mobile and consumer broadband average revenue per user grew by 9% and 4% year over year, respectively, with almost no effect on churn rates. The firm is also doing well in keeping operating costs under control, up 2.3% excluding TV program rights for the first 6 months, which we consider satisfactory given the high inflationary environment. We maintain our narrow moat and GBX 200 fair value estimate for BT Group and see the shares as undervalued.

Openreach was once again the strongest performer, with EBITDA up 12% year over year thanks to increased volumes in its fibre-to-the-home offering, with 748,000 additions (718,000 last quarter). Openreach’s broadband ARPU also grew by a strong 10% year over year thanks to price rises and the higher cost of FTTH premises. The business division continues to weigh on BT’s performance, with a 10% EBITDA decline in the quarter from higher costs and the loss of higher-margin contracts.

In January 2024 the current CEO Philip Jansen will be replaced with a new CEO Allison Kirby, the current CEO of Telia. In our view, Jansen, who has been CEO since 2018, has done a good job in managing Openreach’s network rollout, steering the firm through the coronavirus pandemic and current economic environment, and launching an ambitious long-term cost-cutting plan. We hope Kirby will follow suit.