BT (LSE: BT-A) shares were among the biggest risers in the FTSE 100 this morning as the company released a surprisingly upbeat half-year report.
Could now be the time to finally be bullish on the company? While not entirely convinced, I certainly think there are reasons for holders to be more positive than they were.
“Relatively resilient”
Revenue at the telecommunications titan came in at £10.6bn over the six months to the end of September. This was 8% lower than over the same period in 2019. Nevertheless, this performance was regarded as “relatively resilient” considering the impact of Covid-19 on parts of the business.
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BT has been hit by cancellations to the sporting calendar. It’s also seen a decline in sales of legacy products and lower business activity. As such, simply meeting expectations was probably as good as investors could hope for.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) came in 5% lower (£3.72bn) than the previous year. However, this was helped by cost-saving measures introduced by management. Pre-tax profit fell by 20% over the period to £1.06bn.
On an operational front, BT said that its rollout of fibre broadband has hit record levels in the second quarter of its financial year. The FTSE 100 firm also stated that its 5G-ready customer base was now over one million and that this network was available in 112 towns and cities in the UK.
However, it’s the better-than-expected outlook that seems to have got the market excited about BT shares.
Positive outlook
Today, the company announced that it would be raising the lower end of its guidance on 2020/21 earnings. This would now be between £7.3bn and £7.5bn. As a result of more cost-saving and sales of growth products, BT then expects this number to rise to “at least £7.9bn” in 2022/23.
But there’s more. The fact that earnings are now expected to be higher than previously expected makes it increasingly likely that BT will go ahead and reinstate dividends axed earlier this year.
Right now, there’s no mention of how large this payment might be (it’s likely to be low). However, this news has clearly been welcomed with open arms by a market desperate for some light at the end of the tunnel. After all, BT’s biannual cash payouts have been one of the main reasons to hold the stock over the years.
BT shares: too cheap?
It’s hard to ignore the fact that the performance of BT shares over 2020 so far has been pretty dire. Priced just below the 200p mark in January, they’re now up for grabs at almost half this price.
With markets skittish over the possibility of rising coronavirus infection rates and more restrictions being enforced, there’s clearly no guarantee they won’t resume their downward descent after today. Having fallen for so long, it’s not unreasonable to be sceptical on BT, especially with net debt of almost £18bn.
Then again, today’s numbers and news could turn out to be the point at which the shares begin to look a tad more appealing, particularly for income investors.
So, while I wouldn’t pile in just yet, I wouldn’t be against building a position from this point either. On less than six times forecast earnings before today, a lot of concerns appear to be priced in.
