This article has been adapted from our sister site across the pond, Fool U.K.
BT
Revenues slip
In the final three months of 2010, the former British Telecom saw its revenues slip 3% (versus the same period of 2010) to just over 5 billion pounds. Here's a breakdown of this figure by division:
|
Division |
Q3 Revenue |
Change |
|---|---|---|
| BT Global Services |
2.0 |
-7 |
| BT Retail |
2.0 |
-3 |
| Openreach |
1.2 |
- |
| BT Wholesale |
1.1 |
- |
| Intra-group items |
-1.2 |
3 |
| Total |
5.0 |
-3 |
*Amounts in pounds.
As you can see, there was no revenue growth at network-access arm Openreach and corporate service provider BT Wholesale. The biggest drops in revenue were seen at corporate IT provider BT Global Services (down 7%) and consumer-focused BT Retail (down 3%).
Thus, the areas of BT focused on large corporate customers -- a cut-throat market -- seem to be treading water at best.
Profit up, debt down
The good news for BT shareholders is that cost-cutting and improved broadband take-up boosted pre-tax profit to 531 million pounds, up 30%. Strip out exceptional items and BT's profit before tax more than doubled, up 111%.
Likewise, third-quarter earnings per share (EPS) rose 32% to 4.5p. It was up 96% if you exclude exceptional items.
Over nine months, strong cash flow enabled BT to repay 1.4 billion pounds, reducing its net debt to 8.7 billion pounds by the end of 2010. BT's liabilities would have fallen even further, had it not been for 525 million pounds ploughed into BT's under-funded pension schemes.
Based on its current market capitalization of 13.8 billion pounds, BT's gearing drops to 63%, which is fairly modest for a regulated utility company.
Customer numbers rise
BT Retail revealed a healthy rise in its market share for broadband, with a net 188,000 new connections in three months. This equates to more than half (53%) of all new broadband accounts and is BT's best market gain for eight years.
Elsewhere, broadband-TV provider BT Vision added another 40,000 customers, versus 24,000 between July and August. In total, BT and its partners added 356,000 new customers, versus 253,000 in the prior quarter.
BT's valuation
As I write, BT shares are up over 3% at 184.5p.
In its 2010/11 financial year, BT's total revenues of around 20 billion pounds should generate a pre-tax profit of over 1.6 billion pounds, producing EPS approaching 18p. Thus, BT shares trade on a price-earnings ratio of just over 10. Based on a trailing yearly dividend of 7p, BT yields 3.8%.
Being right in the ballpark for telecoms giants, BT's fundamentals are neither compelling nor a big turn-off. That said, a few big contract wins could boost the performance of BT Global Services and continue the recovery at BT's biggest business.
Over the past 12 months, BT shares have risen 38%, almost tripling the 14% gain in the FTSE 100 index. While they are unlikely to shoot out the lights again this year, they remain a core holding for fund managers and risk-averse private investors alike.
With BT, what you lose in thrills, you gain in solidity and liquidity!
More from Fool U.K.'s Cliff D'Arcy:
