February 1, 2013 6:41 pm

BT: walking the walk

UK telecoms group is at a five-year high and there may be more to come

It may be good to talk. But, for investors, walking the walk is always more important. And that is, broadly speaking, what BT did when it released third-quarter numbers to the end of December on Friday. Revenues at the UK telecommunications company remained soft, down 6 per cent at £4.5bn year on year – or an underlying 3 per cent once lower transit revenues from carrying competitors’ traffic on its network were excluded. But costs fell faster, by 7 per cent on an underlying basis. So earnings before interest, tax, depreciation and amortisation rose 2 per cent, to £1.5bn. This last figure was slightly ahead of forecasts and helped the shares, up 30 per cent since June, to a five-year high.

Revenue weakness, of course, is commonplace among European telcos as regulatory pressures and recession take their toll. There is also a limit to any company’s capacity to use cost-cutting to offset sales growth. But BT, at least, seems to have plenty of scope, not least in its global services division. And it has promised an improving trend for revenues in 2014 and 2015 – so a slower rate of sales decline at least. On that front, the past quarter threw up some hopeful signs. Global services’ new orders were up 17 per cent year on year at £1.9bn. And, back at home, a creditable 200,000 (net) retail fibre broadband customers were added, taking the total above 1m.

More worryingly, the pension deficit blew out to £4.3bn, compared with £1.9bn at end-March. This was mostly from a deterioration in liabilities caused by lower discount rates. There is no suggestion that BT plans to change its deficit repair programme, but there could be risks ahead. Conversely, its balance sheet remains solid, with net debt of £8.1bn. The shares, on an enterprise value to ebitda ratio of 4.8, are in line with the sector. Even so, they should have scope to walk on.

Email the Lex team in confidence at lex@ft.com

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