Buy BT at a long-term bottom?

Q2 EBITDA was up by 3% yoy. BT is well on track to meet its £3bn savings target by FY25 and we await the next phase (plan to shed 40% of staff by the end of the decade). BT is a long-term buy and hold. However two elements are likely to prevent a sharp increase in the short term: a dividend yield at 6.95% and short-term selling pressure with the possible exit from the share capital of Drahi or DT.

BT stock: a case to follow very closely

There may be short-term selling pressure on the stock with the possible exit of the capital of Drahi or DT. Infrastructure funds are, however, certainly following BT closely. Several large private equity firms could launch a joint offer for the whole company if they can first find a price to buy Drahi’s and DT’s stakes.

A fairly safe long term buy and hold

A decent Q1 performance despite the expected headwinds from cost-of-living pressure and cost inflation. The group is clearly a fairly safe long-term buy and hold. BT plans to shed more than 40% of staff by the end of the decade. In parallel it is further accelerating its FTTP deployment with high capex. But at the end of this phase EBITDA-capex could be multiplied by 2.5. Speculation could also again reignite as Drahi’s empire (owning 24.5% of BT) is being shaken by corruption cases.

Thunderclap in British telecoms

FY23 revenues and EBITDA were in line with expectations. The major news was that BT plans to shed more than 40% of staff. At the end of the decade the EBITDA could reach £11bn with the massive restructuring announced and capex could return to €3.5bn per year. EBITDA less capex could be multiplied by 2.5 and therefore also the dividend. This could value BT at 385 pence at that time. We maintain our opinion at Add on the stock.

Pay attention to BT's future contributions to its pension assets

BT’s Q2 operational performance was pretty decent and similar to that of the Q1 with revenues up by 1% yoy and EBITDA up by 3% yoy. But pay attention to BT’s pension assets. The group has decided to input a 5.35% discount rate to somehow hide its massive pension fund deficit and to shift in time the contributions it will have to make to balance its pension accounts when inflation returns to a more normal lower level.

Modest revenue growth for the first time in a long time

In Q1, the group returned to growth in terms of revenue for the first time in a long time. However, this is the objective that the management had set for 2022/23 three months ago. Cost control remains ongoing but capex continues to grow. We are now at Add (with a limited 13% upside) on the stock which has declined by 11% in the last two weeks with the rotation toward quality growth stocks at the expense of telcos.

Hoping that revenue will finally grow in 2022/23

No surprise for the Q4 as revenues still did not stabilise while the EBITDA was up by 3% thanks to BT’s transformation programmes and tight cost management. Capex was however up by a whopping 25% in 2021/22 and will remain at its peak in 2022/23. So, the group is not yet out of the woods and we see no dividend increases in the coming years… We remain at Reduce (however, with now some modest upside).

BT deploys fibre in the UK but sales recovery is not here

Stock up by 5% following the Q2 release. The market welcomes indeed the return of dividends and the effective deployment of BT’s ultrafast fibre network. Moreover, the group has hit its £1bn cost savings target 18 months early and now brings forward its 2024/25 target for £2bn of savings to 2023/24 with further savings in 2024/25. Here is the rub: the sales recovery is still not there. We maintain therefore our opinion at Add on the stock.

Revenues do not stabilise despite a favourable basis of comparison

Disappointing Q1 in terms of revenue, however offset in part by a solid EBITDA. Be cautious however that BT, like Orange, does not despair investors by postponing the stabilization of its revenues quarter after quarter. We maintain our opinion at reduce on the stock, however now with… a slight upside.

Where it is a matter of accelerating BT's fibre deployment

Patrick Drahi announced yesterday the acquisition through Altice of a c.12% stake in BT. We believe that BT’s stock after its 6% increase yesterday is now at its price. We also don’t believe that Drahi will increase his stake in the short term… he will have more influence on the strategy as an activist fund. He will be the gadfly to push BT to divest Sports rights and to accelerate its fibre deployment (by bringing in Infrastructure funds).

Q4 will still be tough pending a revenue stabilisation in 2021-22

As expected, Q3 revenues and EBITDA were down by 5%, a less pronounced fall than in H1 but lockdown restrictions in Q4 are expected to impact the trading performance further with almost the entire retail estate closed in addition to all pubs and clubs. BT’s stock probably reached its nadir in November. It has recovered by c.35% since November but is still down by 20% yoy. BT must now stabilise its revenues, which won’t be possible for 2020/21 given the context.

A lower EBITDA decline than in Q1 and the outlook slightly raised

Q2 EBITDA was slightly better than expected, down by only 3% yoy despite an expected 7% revenue decline. As a result the EBITDA outlook for 2020/21 has been slightly raised. We have a Buy on the stock which offers significant upside potential to our target price as it has not recovered since mid-March and is still down by 50% ytd. Now that the dividend has been cut, we continue to believe that BT merits a much higher share price.

Doing a bottom can take time

Both Q1 revenues and EBITDA were down by 7% yoy with a COVID-19 impact a little bit more significant than the average for telcos. The group is currently investing heavily in its networks and one day this will pay off, although for the moment we are still waiting for a…revenue stabilisation and COVID-19 won’t help matters in 2020/21. We maintain, however, our Buy opinion: now the dividend has been cut, BT does not deserve such a low price.

CyanConnode (CYAN LN) - FY24 update: revenue materially ahead

CyanConnode exceeded FY24 revenue expectations and has high visibility into FY25, supported by strong deliveries and a growing backlog respectively.

BATM+ (BVC, House Stock at 18p) - New client Edgility contract

Hybridan Research: Sector Review: Artificial intelligence in UK cybersecurity: the human uplift 17/04/2024

Artificial intelligence (AI) is a double-edged sword in cybersecurity. Whilst new AI models, architectures, and innovations are emerging to protect the security posture of organisations, attackers are also benefiting from deepfakes, sophisticated phishing, and automation of malicious codes. To ensure the impact of AI on cybersecurity to be a net-positive, we need to pit good AI against bad AI. Point solutions enhanced with machine learning: Global cybersecurity has been built with point soluti

CyanConnode (CYAN LN) - The smart choice

CyanConnode provides end-to-end communications platforms that connect Internet of Things (IoT) devices such as smart meters to a utility's billing system. The company is a global player and a market leader in India, where a new government scheme, as set out below, has mandated the procurement of 250m meters by March 2025, a significant market opportunity for CyanConnode.

Morning Note – 21 December 2023

PROGRESSIVE: Gamma Communications: More happy returns

Gamma’s results for the year ended 31 December are in line with the expectations confirmed in the January trading update. Revenue of £521.7m is 8% ahead of FY22, with gross profit at £267.2m showing the same progress. Adjusted EBITDA grew by 9% and PBT by 10%, although the impact of higher tax rates was seen in the 5% increase in adjusted EPS. Cash generation was strong once again, with 108% adjusted cash conversion. Year-end cash of £134.8m is £42.3m above the year before, even after the £30.5m

Cyanconnode (CYAN): Smart meter breadth and depth

CyanConnode has steadily been making progress in India, where the national smart meter programme has been gathering pace. In July 2022, the company crossed the one million mark for meters connected to its RF network across nine Indian states. This is the aggregate RF device number in India connected since 2014 and represents market share of 22%. The latest update from the company states an order book of 2.6m RF nodes for India. Performance of smart meters is a critical aspect of the Indian progr

CyanConnode (CYAN LN) - Large Letter of Award for Omnimesh Cellular Modules

CyanConnode has received a large Letter of Award (LOA) for Omnimesh Cellular Modules (CNICs) from a Thai customer.

BATM+ (BVC, House Stock at 19p) - Cyber, a quantum perspective - Cyber, a quantum perspective

CyanConnode (CYAN LN) - H1 FY24: On track

CyanConnode’s H1 results position the company to meet our full year forecasts. The company does not need to grow revenue yoy in H2 in order to meet full year estimates. The Indian smart metering programme appears on track, with 98m smart meters already awarded to prime bidders and these orders should soon filter down to competitively well positioned subcontractors such as CyanConnode. These market drivers position the company well to grow revenue 39% in FY24 and 111% in FY25 and for a £1.9m of o

Filtronic - H1/24 Riding the EM-waves across land, sea and space

Filtronic has reported results in-line with management expectations for H1/24, and now expects to perform ahead of our forecasts for FY24E and FY25E in terms of revenue and profit. We are raising our revenue forecasts for FY24E and FY25E by 14.6% and 6.2% respectively, and our EBITDA forecasts by 85.2% and 28.0% respectively. The increase in expectation is driven by a strong recent acceleration in order flow, including a £7.8m order announced today. In this report we present a detailed review of

Morning Note – 3 April 2024

CyanConnode (CYAN LN) - FY23 results: Solid outlook

Revenue grew 23% in FY23 with limited contribution from Indian RDSS contracts

Filtronic - Expecting 10% pa compound revenue growth to FY24

As revealed in last week’s interim update, strong demand continued through 1H23 and into 2H23, fuelled by demand for backhaul modules in the ongoing 5G rollout, newly won defence contracts and a post-COVID recovery in critical coms. This led to solid +5% yoy growth in 1H revenue and a current record order book of £17m – a full year’s worth of business for the group. The update also revealed that shortages and the resulting price hikes on specific components led to FTC delaying some 2H23 producti

The Joy of Techs - Cavendish Technology quarterly sector note

£23.3bn in enterprise value has been returned to AIM technology shareholders over the past six years in the form of 51 public to private takeouts, including 10 in 2023 alone with the takeovers of Smoove* and Tribal announced in early October. With UK valuations appearing cheap and looking more attractive to potential acquirers, we take a moment to reflect on the trends of corporate and private equity bidders targeting AIM-listed technology companies going back to 2017, through the uncertainties