BT share price: what to expect from full-year results

When is BT’s earnings date?

BT reports full-year earnings on 9 May, covering its financial year to 31 March 2019.

BT’s results preview – what does the City expect?

BT is expected to report headline earnings per share of 25.9p, down 6.7% over the year, and £23.7 billion revenue, a drop of 1.6% from a year earlier. The firm has beaten estimates in all eight of its last earnings reports for headline earnings per share (EPS), and six out of eight for revenue.

Earnings have declined since 2016, from above 30p per share, and are expected to decline into 2020 before beginning a modest rebound. Until the earnings trend has been reversed and the firm starts to see a rise in income, the focus will be on cost-cutting and holding the line on expenditure rather than focusing on growth and ways of gaining market share.

Further savings of up to £900 million would require a rise in job cuts, and further cost-cutting across the business, but this would then help to boost earnings. The new CEO seems well-placed to implement this, along with investment in full-fibre and 5G in order to revive the firm’s growth outlook. In previous years the firm has been able to rely on its consumer division, but here too BT is feeling the pinch, as consumers take longer to upgrade their phones and its rivals cut their broadband prices in order to attract new customers.

BT’s previous CEO, Gavin Patterson, was doomed by the size of the debt pile created by its bid to dominate the sports broadcasting arena. While it seemed to pay off in the beginning, eventually the ‘arms race’ between BT, Sky and others became too much for the telecoms firm. Since Patterson’s departure the enthusiasm for the future has waned, and it needs a major strategic rethink from the new boss to re-energise investors.

At present, the dividend yield of near 7% is beginning to look excessive, but a cut to the payout would risk denting shareholder confidence. At present, profits cover the dividend by around 1.7 times, so for now the firm is not paying dividends out of its cash reserves.

BT currently trades at 8.9 times forward earnings. This is slightly higher than the 7.6 low of early 2018, but is still below the five-year average of 11.7. Indeed, BT has been below the five-year average since the early weeks of 2017, but the difficulties facing the firm seem to warrant this low valuation.

How to trade BT’s results

The average move on results day for BT is 5.45%, according to Bloomberg data, but at present options pricing suggest a move of 3.9%, indicating a reduction in volatility. Of 24 analysts currently covering BT, there are 14 ‘buys’, nine ‘holds’ and one sell, while the median target price is 289.5p, compared to a current price of 230p.

Volatility in BP shares raced higher in the fourth quarter (Q4) 2018, with the 14-day average true range (ATR) surging from around 4p to a peak of almost 10p. Since then, the ATR reading has declined significantly, moving back to and now below the 4p level that characterised price action during the middle months of 2018.

BT share price: technical analysis

BT shares hit a high of 437p back in late 2015, but from there a remarkable downtrend developed; the price dropped from above 400p per share to a low of 189p in May 2018. Interestingly, the price began a sustained rally from May, helped by news of the change of CEO, and continued to rally through the second half of 2018, even as the FTSE 100 sold off heavily like other global markets in the final months of the year.

The contrary performance then continued in the last two months of the year, as the price topped out around 260p and began to decline. Since November the price has underperformed the broader index by a significant margin – since the beginning of November the FTSE 100 is up 4.6% compared to a 13.5% drop for BT.

In January and February, the shares mounted a spirited defence of rising trendline support from the May lows, but in late February the price finally dropped below support and continued to fall to new six-month lows. A small rally since then however has broken through trendline resistance from the December highs, and has seen the share price recover to 230p. A dip below 224p and trendline support from the March low found support towards the end of April.

Further gains target 241p and then on to the November highs at 262p, assuming the price breaks higher from the current ascending triangle. A drop below 220p would likely signal the beginning of a new leg down, targeting 210p, then 197p and 189p.

Conclusion

BT’s new CEO has a lot of work to do. He has to restore market confidence in the firm and come up with a coherent plan that reverses the decline in earnings. If he succeeds then the low valuation becomes a possible bargain, while the share price might see a resumption of its uptrend. Until then, however, BT’s future looks doubtful.