Top UK Stocks to Watch: BT Group to accelerate rollout of fibre broadband

BT Group shares plunge as it releases annual results, Burberry’s dividend returns to pre-pandemic levels, Rolls Royce is still eyeing a recovery later this year, Balfour Beatty expects profits can bounce back, and Carnival is forced to cancel more cruises due to ongoing uncertainty.

UK

Top News: BT Group pivots to more ‘consistent and predictable’ growth

BT Group said it was raising its ambitions for the rollout of full-fibre broadband across the UK and looking to work with other companies to accelerate it further as it posted annual results that missed expectations.

The telecoms giant said it is now aiming to have 25 million homes hooked up to full-fibre broadband by 2026, up from its previous target of 20 million. BT is also exploring the potential to work with other companies through a joint venture to boost that figure by a further 5 million homes.

This will see Openreach, BT’s unit responsible for managing the nation’s broadband network, start to ramp-up to connecting 4 million premises to full-fibre each year with ‘immediate effect’.

BT said it had made the decision to raise its ambitions after a number of uncertainties were removed, such as the regulatory review of the wholesale fixed telecoms market, the latest 5G spectrum auction and the government’s new tax deduction on capital expenditure spent on the rollout.

The more ambitious outlook, with BT stating it is now ‘pivoting to consistent and predictable growth’ after a number of tough years, came as it reported a 7% drop in revenue during the year to the end of March to £21.33 billion. That was because the pandemic weighed on demand from consumers and businesses and due to divestments BT has made overseas. That was in-line with guidance but below the £21.40 billion expected by analysts.

Adjusted Ebitda was down 6% at £7.41 billion, toward the upper end of its target range. Profit after tax dropped 15% to £1.47 billion, slightly less than the £1.5 billion forecast by analysts.

BT said it expects revenue to remain broadly flat in the new financial year while adjusted Ebitda should inch up to between £7.5 billion to £7.6 billion. Normalised free cashflow should be between £1.1 billion to £1.3 billion, down from the £1.45 billion booked in the recently-ended year.  

BT is not paying a final dividend for the year but has already pledged to resume payouts in the new financial year with a dividend of 7.7 pence.

BT also announced it has struck a new deal to handle its £7.98 billion pension deficit, which is one of the largest in the country. About £2 billion will be plugged using asset-backed funding secured against EE while the rest with be paid over the next 10 years starting with a £900 million annual payment before dropping to £600 million from 2024.

Where next for BT Group shares?

BT’s share price has rallied since early November. It trades above its ascending trend line and its 20 & 50 sma on the daily chart. The price ran into resistance at 172p a post pandemic high before easing lower.  

Today’s 3% drop off saw support tested at 158.50 the March high. So far the support holds. A break below this level could negate the near term up trend. A break below the 50 sma and horizontal support at 150p could prompt a much deeper selloff towards 140p the ascending trend line. 

On the upside, any recovery in the price would need to clear 172p in order to aim towards 180p the late 2019 pre-pandemic low. 

Burberry reinstates dividend despite revenue being hit by discounting  

Burberry said it has reinstated its dividend to pre-pandemic levels as the recovery in demand continues to gather pace, but warned margins and profits could be lower this year.

The luxury fashion brand, like the wider retail sector, suffered when the pandemic initially erupted but started to recover later on in the year. For example, comparable store sales were up 32% year-on-year in the final three months of the financial year to March 27 and only 5% below pre-pandemic levels despite a number of stores remaining closed. Full-price sales were up 63% in the quarter, driven by demand in China, Korea and the US. The recovery was so strong that Burberry said it still managed to deliver 7% growth in full price comparable sales over the full year.

Still, total revenue was down 10% year-on-year at constant currency to £2.34 billion as it was forced to discount its goods to shift them. That was the result of a 30% drop in the first half and an 8% rise in the second. Adjusted operating profit fell 9% to £396 million, coming in well ahead of the £370 million expected by analysts.

The performance and confident outlook prompted Burberry to reinstate its full-year dividend to pre-pandemic levels at 42.5 pence, up from the 11.3p payout the year before.

Burberry said it expects revenue to grow by a high single digit percentage in the new financial year but warned adjusted operating profit could be hurt by a tighter margin as costs normalise and investment accelerates with the hope of expanding the margin later on.

‘In the last three years we have transformed our business and built a new Burberry, anchored firmly in luxury. We have revitalised our brand image, renewed our product offer and elevated our customer experience while making further progress on our ambitious social and environmental agenda. In spite of COVID-19, we achieved our objectives for the period and delivered a strong set of results in FY21, ending the year with good full-price sales growth. In this next chapter, supported by these foundations and the strength of our teams, we will accelerate our growth and deliver value creation while continuing to build a more inclusive and sustainable future,’ said chief executive Marco Gobbetti.

Burberry shares were trading 7.8% lower in early trade this morning at 1936.3, having given back all the gains made since the start of April.

Rolls Royce says recovery is progressing in line with expectations

Rolls Royce said its markets have performed as expected since the start of 2021 after being hard hit during the pandemic and reiterated that it hopes things will improve later this year.

Rolls Royce has been among the worst-hit over the last year as it receives income based on how long its aircraft engines are up in the sky and international travel has been largely off the table. Meanwhile, demand for its power systems has also experienced a challenging environment, leaving it only with its defence division to lean back on for resilience.

The company said large engine flying hours were at about 40% of pre-pandemic levels in the first four months of 2021. The demand left in the market at present has come from cargo and maintenance flights. This is broadly the same level of activity seen at the end of 2020 and in-line with the company’s expectations.

‘While the timing of the recovery remains uncertain, the progress of COVID-19 vaccination programmes in a significant number of countries, particularly the US and UK, is encouraging. Combined with increased testing, vaccination programmes are key enablers of further recovery in international air travel,’ said Rolls Royce.

Power systems has also performed in line with expectations as demand from governments remains resilient and grows for aftermarket services. Rolls Royce is expecting the unit’s recovery to accelerate throughout the rest of the year.

Its defence division continues to see its backlog grow as its order intake remains strong. It is expecting to find out if it has won a contract involving new B-52s from the US Department of Defense in the second half of this year, while it also hopes to benefit from the £2 billion in extra investment pledged by the UK government for air defence.

Rolls Royce has been restructuring to trim costs and streamline the business, which it hopes will place it in a better position to bounce back from the pandemic. This should, when completed, deliver around £1.3 billion in annual cost savings.

‘We continue to expect to turn free cash flow positive at some point during the second half of 2021, as engine flying activity recovers and cost savings are delivered. As previously highlighted, our guidance remains sensitive to the timing of engine flying hours recovery and the timing of original equipment concession outflows on already delivered widebody engines’ said Rolls Royce.

The update came ahead of the company’s annual general meeting later today.

Rolls Royce shares were trading 0.4% lower this morning at 104.3.

Balfour Beatty hopes to benefit from increased infrastructure spending

Infrastructure developer Balfour Beatty said it has appointed Charles Allen as its new chairman ahead of its annual general meeting later today and that it hopes to keep benefitting from increased investment in infrastructure in the likes of the UK and the US.

The company said construction services has continued to recover since the start of 2021 after being disrupted by the pandemic last year. It said the UK remains the most-impacted market as work for the public sector continues to suffer but is largely being offset by work for the private sector.

Support services has continued to perform well by providing vital maintenance for the likes of power, road and rail projects.

Balfour Beatty said construction and support services combined should deliver an underlying profit from operations of around £172 million in 2021, in line with pre-pandemic profits booked in 2019.

Meanwhile, its infrastructure investment arm has started selling more assets to capitalise on higher demand for infrastructure assets.

Balfour Beatty said its order book stood at £15.7 billion at the end of March compared to £16.4 billion at the end of December. ‘Balfour Beatty remains positive about the strong medium term outlook in its core infrastructure markets, where the group is well positioned and will continue its profitable managed growth strategy through selective bidding,’ the company said.

Balfour Beatty also said it has appointed Charles Allen as its new non-executive chairman, who will join today after the AGM. He succeeds Philip Aiken who has been chair since 2015.

‘The impact of the pandemic, coupled with political changes in the US and UK, have accelerated those governments' spending plans on infrastructure and sustainability as a means to stimulate economic recovery. Today, Balfour Beatty is very well positioned to capitalise on these changes to grow profitably in its chosen markets,’ said chief executive Leo Quinn.

Balfour Beatty also said its share buyback programme had accelerated in recent weeks, having bought £58 million worth of shares in the first four months of the year. It expects to have bought back £150 million of shares by the end of the year.

Balfour Beatty shares were trading 1.2% lower in early trade at 307.1.

Carnival forced to cancel more cruises due to pandemic

Carnival said it is cancelling planned trips on Princess Cruises that were due to set sail from the US to the likes of Mexico, the Caribbean and the Mediterranean due to ongoing restrictions on travel.

The company said Princess Cruises has decided to cancel the California Coast and Mexico sailings on the Ruby Princess ship until at least August 21, as well as all Caribbean Princess cruises. It has also cancelled all remaining Mediterranean trips due on the Enchanted Princess ship for the rest of this year.

‘We continue to have constructive discussions with the CDC but still have many questions that remain unanswered. We are working diligently to resume sailing in the US and meet the CDC guidelines,’ said Jan Swartz, the president of Princess Cruises.

‘We know our guests are just as eager as we are to begin sailing, and we appreciate their patience as we get close to resuming cruising,’ Swartz added.

Princess Cruises will allow guests impacted by the cancellations to rebook on other trips in 2021 or 2022 but will also give them the option to get a full refund.

Carnival shares were trading 3.4% lower in early trade this morning at 1482.6.

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