BT shares up as pension deficit falls and second quarter tops forecast

BT Group PLC on Thursday delivered second quarter results ahead of expectations while it outlined the potential for shareholder returns after striking a new pension agreement.

In response, shares in the London-based telecommunications firm rose 3.8% to 240.50 pence each in London on Thursday morning and have risen 34% in the last 12 months.

FTSE 100-listed BT said pretax profit rose 12% to £1.07 billion in the half year ended September 30 from £956 million the year prior.

Revenue edged up to £8.75 billion from £8.70 billion, with basic earnings per share up 13% to 8.5 pence from 7.5p.

Cash generated from continuing operations amounted to £2.57 billion, down 10% from £2.87 billion a year ago.

Capital expenditure fell to £2.28 billion from £2.39 billion.

In its second quarter, BT said adjusted revenue rose 1.6% to £4.43 billion from £4.36 billion.

Adjusted service revenue edged down to £3.84 billion from £3.86 billion. While adjusted earnings before interest, tax, depreciation and amortisation rose 2.5% to £2.08 billion from £2.03 billion.

Analysts at Berenberg said BT's service revenue was 1% ahead of consensus for the quarter, while revenue and Ebitda were both 3% ahead due to beats at Consumer and Openreach.

Chief Executive Allison Kirkby said that BT "delivered a strong first half, with further strategic momentum in a competitive market".

BT flagged record customer demand for Openreach first-to-the-post with over 1.1 million net additions in the financial first half.

Total premises connected were 9.9 million at the end of September and have surpassed 10 million in October.

Openreach broadband average revenue per user of £17.8 grew 7% year on year, driven by inflation-linked price increases, higher FTTP take-up and speed mix, BT said.

Net debt totalled £21.0 billion at September 30, raised from £20.0 billion at the end of March, driven by scheduled pension contributions and full-year dividend payment, partially offset by cash generated from trading activities.

The interim dividend was boosted to 2.50p per share from 2.45p.

In addition, BT said a triennial pension agreement has been reached. It noted the BT Pension Scheme's funding position continues to improve, with the deficit reducing to £2.7 billion at June from £3.7 billion three years earlier.

Payments agreed at the 2023 valuation will address £2.1 billion of the deficit, BT said, and will be substantially replaced by zero-coupon bonds.

BT said it will need to provide £282 million of additional funding to ensure the BTPS remains on track to reach full funding by 2030. The additional funding will be provided through a zero-coupon bond maturing in 2033.

BT said this will "substantially reduce" the funding deficit, to around £300 million, which will be addressed by expected future investment returns to 2030.

"No further deficit contributions are expected to be required for BTPS to reach full funding," it added.

BT said the measures both improve the security of the scheme and provides it with greater corporate flexibility.

BT said this allows for shareholder distributions of up to £1.5 billion in financial 2027, increasing to £2.0 billion by FY30, without triggering additional payments to BTPS.

"This agreement supports our capacity to continue to invest in next-generation networks and transform BT. It reflects our disciplined approach to capital allocation, balancing long-term investment, our pension commitments, sustainable dividend growth and a strong balance sheet," commented BT Chief Financial Officer Patricia Cobian.

JPMorgan analyst Akhil Dattani called the pension update "transformational", noting it was delivered ahead of plan, and shows BT's "shareholder return potential".

Looking ahead, BT reaffirmed full-year guidance for adjusted revenue of £17.1 billion to £17.6 billion, adjusted service revenue of £15.1 billion to £15.4 billion and adjusted Ebitda growth to within the range of £8.1 billion to £8.2 billion.

It continues to see capital expenditure excluding spectrum of £4.2 billion to £4.3 billion and normalised free cash flow of £2.0 billion.

The outlook excludes the impact of the TalkTalk acquisition. BT will provide further details on the effects of the acquisition later this financial year.

Mid-term guidance was also reconfirmed for sustained growth in adjusted revenue and adjusted service revenue and sustained growth in adjusted Ebitda ahead of service revenue.

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