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The BT Group (LSE: BT.A) share worth fell 7.5% on Thursday morning (7 November), on first-half outcomes.
That’s regardless of the interim dividend rising 3.9% to 2.4p per share. The identical increase to the ultimate payout this 12 months might push the dividend yield above 6% based mostly on in the present day’s fallen share worth.
The ultimate dividend paid for the 2023-24 12 months, it appears, was “fully covered by normalised free cash flow.” I see that as a transition level, which eases one in all my fears.
Revenue weak spot
So what’s the issue? Revenue earlier than tax fell 10%, to £967m, after income dipped 3%. And reported earnings per share (EPS) got here in 9% down, at 7.8p.
On an adjusted foundation, EPS rose by 3.9% to 10.7p. And the corporate places its normalised free money stream 57% forward (with reported web money influx up 29%).
I actually don’t prefer to see a interval when reported and adjusted figures diverge so extensively.
It is perhaps nothing to fret about, as adjusting and normalising outcomes may also help even out short-term fluctuations that don’t imply lots. And that’s factor for long-term Silly buyers.
Disappointing flip
Nevertheless, it additionally means uncertainty. And BT is an organization that I’d say has proven extra uncertainty than most within the FTSE 100.
One more rise in debt solely provides to that. The online debt determine at 30 September reached £20,267m, up £578m from the £19,689m on the identical time final 12 months.
And it’s above the 31 March year-end degree of £19,479m, which itself marked a £620m rise from 31 March 2023. Can debt simply hold going up and up, with out ever doing any harm to BT’s dividend prospects?
At FY time, BT spoke about having “passed peak capex on our full fibre broadband rollout and achieved our £3bn cost and service transformation programme a year ahead of schedule.” And it mentioned it had “reached the inflection level on our long-term technique.“
That turned me from being bearish on BT to cautiously bullish. And it’s what makes this newest replace a disappointment.
Dividend prospects
BT stays upbeat and is sustaining its optimistic steering.
The corporate nonetheless envisages “sustained adjusted revenue growth and EBITDA growth ahead of revenue enhanced by cost transformation” from FY26 to FY30.
It says capital expenditure ought to fall. And we must always anticipate “c. £2.0bn in normalised free cash flow in FY27 and c. £3.0bn by the end of the decade.”
These are unchanged from the board’s outlook on the finish of the complete 12 months to March 2024.
I additionally see: “We reconfirm our progressive dividend policy which is to maintain or grow the dividend each year whilst taking into consideration a number of factors including underlying medium-term earnings expectations and levels of business reinvestment.”
What to do?
I’ve come shut to purchasing BT shares for the dividend in current months. And I do suppose it might be inventory to think about for long-term revenue. However I’m going to carry off a bit, possibly till the top of the 12 months. I’d like to see that debt cease rising.
