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BT: Q3 results
Organic revenue growth of 3% was in line with the last few quarter. Strong organic growth in “new wave” of 27% offset the continued declines in the older lines of business (i.e. plain voice).
EBITDA has stabilised since the first half, falling 0.6% (before redundancy costs and one-offs) in the quarter. However BT has commented that margins in new wave businesses are improving and margins in traditional businesses are stabilising, which suggests that we can expect a turnaround in overall EBITDA margin next year.
The strong growth in new save revenues and the acquisition of Albacom have changed the revenue mix significantly, and new wave revenues are now a third of the total.
We were encouraged that revenue per consumer household (a similar measure to ARPU) remained stable despite competition, as broadband revenue growth offset lower prices for voice, although it should be borne in mind that BT is losing customers as its dominant market position is eroded.
The decline in consumer market share is gradual rather than dramatic. It fell from over 59% to around 58% over the quarter. Business market share has pretty much stabilised, falling about 1 percentage point to 41% over the last year.
At 210p the price/free cashflow of 26× does not look too attractive, but this is partly the result of high capex on the major network upgrade and should improve in the future. As with mobile telecoms, the risk that continually advancing technology could create a need for continual upgrades, the risk is lower with fixed telecoms.
The prospective PE is low at 11× and the yield high at 5.4%. While BT may not be a growth stock like the smaller telcos, but it is cheap enough that it does not need to be.
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