Picture supply: BT Group plc
I actually thought the final set of full-year outcomes would have given the BT Group (LSE: BT.A) share worth a lift, after the telecoms big advised us it had reached a key milestone.
It did for a quick spell, however the shares flattened once more. Then the value dipped after this yr’s H1 outcomes on 7 November. The lacklustre response comes regardless of BT having soothed my nerves on my key dividend fear.
What has to occur for the BT share worth to start out climbing once more?
Previous peak prices
I must remind myself what the FY outcomes fuss was all about:
Having handed peak capex on our full fibre broadband rollout and achieved our £3 billion price and repair transformation programme a yr forward of schedule, we’ve now reached the inflection level on our long-term technique — CEO Allison Kirkby, Might 2024
I noticed the capital expenditure wanted for broadband rollout as risking potential hits for 2 vital components: BT’s debt mountain and the prospects for its dividend.
Dividend outlook
The dividend‘s forecast at 5.2% this year, rising to 5.3% by 2027. That’s not an enormous yield, however it has one key factor in its favour. Forecast earnings ought to cowl it, 1.7 occasions within the 2024-25 yr, and as much as 2.0 occasions going by 2027 forecasts.
BT hasn’t needed to do what I’ve feared essentially the most, particularly decreasing its dividend, the best way rival Vodafone did with a 50% minimize. This yr’s progress has boosted my confidence in BT’s long-term dividend prospects. However how do debt forecasts look?
Debt rising
With H1 outcomes, I didn’t like what I noticed. Web debt was as much as £20.3bn, regardless of these price financial savings and the slowing of capital expenditure. The board stated it was primarily resulting from £0.8bn scheduled pension scheme contributions, which might do it.
Forecasts put the determine at £19.9bn by March 2025, and up at £20.2bn by 2027. Will passing this “inflection point” ever have any impact on debt?
Outlook
On the interim stage, BT spoke of “income progress and EBITDA progress forward of income, enhanced by price transformation from FY26 to FY30“. That, it appears, ought to feed by means of to “normalised free money movement of circa £2bn in FY27 and circa £3bn by the tip of the last decade“.
Forecasts replicate that, placing 2027 free money movement at £1.96bn. I simply marvel why no person seems to count on any of it for use to make a critical try at getting BT’s debt down.
The share worth
There’s a consensus goal of 202p for the BT share worth proper now. It suggests a wholesome 29% rise from at present to get there. To know whether or not that’s going to be real looking, I feel we would have to attend for the following FY outcomes. They’re not due till Might 2025, however a Q3 replace in January may give us a clue.
I’m more and more drawn to BT as a dividend inventory. However I actually wish to see that inflection level turning into exhausting money first.
