BT Group plc Ordinary 5p (BT.A)

Company overview

BT Group is among Europe's leading providers of telecommunications services. Its core activities include local, national and international telecommunications services, higher-value broadband and internet products and services, and IT solutions. In the UK, BT serves over 20 million business and residential customers with more than 29 million exchange lines, as well as providing network services to other licensed operators.

HL Comment (15 May 2008)

British Telecom is a former state monopoly which has in recent years found itself at a major crossroads. The once separate worlds of telecommunications and media have slowly begun to melt together. BT’s strength has been in the defensive cashflows which traditional telephone communications provides. However, tomorrow’s world is potentially one of on-demand media (TV, radio, computer games and the worldwide web) not to mention the now widely available potential to pass voice conversations over the internet, all via fast optical cables. This conversion from old copper telephone line services over to fast (new wave) fibre optical services is where the group currently finds itself.

The group’s recent fourth quarter/full year results (15May08) materialised at the higher end of expectations. Full year revenues came in up 2pc to £20.7 billion, whilst earnings before interest and tax were up 3pc to £5.78 billion. On a divisional basis, the group’s Global Services business – delivering IT solutions to multinational companies – was again the star performer. Profit margins at the business again rose (+0.4pc) to 13.7pc and on target to meet management’s 15pc goal by 2010. Retail Broadband services also continued to grow, with the group enjoying a 25pc increase in revenues over the fourth quarter period. Broadband users now total over 12.5 million. On the downside, the group’s transit or Wholesale division continued to see revenues fall, as competitors continued to by-pass BT’s network and connect to customers directly. However, overall management remained confident regarding the future, reflected in a 5pc increase in the announced dividend payment.

On the negative side of the equation for investors, concerns still focus on the highly competitive core voice telecom market, and more recently, growing competition in the broadband arena as well. The moves of Carphone Warehouse, BSkyB and now the Post Office into the Broadband arena continue to heighten concerns over intense competition going forward, whilst the government regulator Ofcom remains a constant worry - given the group’s former monopoly status. On the positive, new wave revenues are still continuing to grow and the technology does still offer many additional potential future revenue streams. Furthermore, the group’s strong cashflows offer support in current uncertain economic times, costs are being cut, corporate IT solutions are still progressing and the dividend yield remains attractive to income investors. On balance, market consensus opinion currently denotes a tentatively positive stance.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
31-03-2008	20,704.00	1,976.00	21.50	9.10	1.80	5.00	15.80	7.30
31-03-2007	20,223.00	2,484.00	34.40	13.40	0.80	16.00	15.10	5.00
31-03-2006	19,514.00	2,040.00	18.40	11.40	1.40	8.00	11.90	5.40
31-03-2005	18,429.00	2,354.00	21.50	11.40	n/a	n/a	10.40	5.10
31-03-2004*	18,519.00	1,945.00	n/a	n/a	n/a	n/a	8.50	4.80

* Prior to 31st March 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).