As the third quarter earnings call approaches, BT Group plc is ‘either on the tightrope or on the plank’

BT Group PLC (LSE :BT.A.) is in a fairly strong position ahead of its third quarter earnings call next Thursday, February 2, compared to Vodafone.

Goldman Sachs (NYSE.GS) analysts reiterated a buy rating for British telecoms multinational in the recent weeks with free cash flows revised upwards of 3-4%. They also noted that “BT’s Digital Infrastructure fibre Monetisation is running ahead our bullish expectations”.

Citi analysts upgraded BT from a sell rating to a 160p price target on the back above-inflation rate hikes that were anticipated for the next months. UBS however suggested that these increases could be already factored in to the share price.

The group’s November interims provided full-year guidance. It set out a PS7.9bn minimum adjusted EBITDA target, PS1.3bn to PS1.5bn free cash flows, and a heavy capital expenditure bill of PS5bn.

Analysts at Berenberg believe this is a difficult task. The investment bank projects a modest 0.4% year-on-year EBITDA increase for the third quarter. This leaves a 5.5% quarterly target to reach PS7.9bn.

Due to the uncertainty around the rises and the political and regulatory uncertainties, the record 1.4% price increases for April – which is four percentage points above current inflation — will have a significant impact on the remainder of the financial year. Customers and investors alike will expect more information on Thursday.

Because so much depends on BT’s pricing policy the group “may well walk either the tightrope, or the plank going in its quarterlies”, as Jamie Ashcroft of Proactive stated previously.

Investors will also get an update on BT’s merger talks.

BT shares currently trade at 129.24p, with a dividend yield 5.96%.

These yields are not as good as Vodafone’s 8%-plus offering. However, BT is objectively more risky due to its 2.5-times dividend coverage against Vodafone’s 0.8.

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