QUMMIF-Equity-Report-BT Plc

QUMMIF INVESTMENT CLUB |2015-2016 QUMMIF. All rights reserved www.qummif.org

SharePricePerformance

PerformanceOver 1M 3M 12MAbsolute(%) 4 31 21Relative(%) 38 11 3.5

Thepricerelativechartmeasuresperformanceagainstthewhichclosedat£61.78on10November2015

-100

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Dec-1

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Jan-15

Feb-15

Mar-15

Apr-1

5

May-15

Jun-15

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Aug-15

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Price PriceRelative

Investment Fund Equity Research Date: 10 November 2015

BT GROUP PLC (BT/A:LN)

Consolidate Momentum, Long term benefit Event This year, BT delivered on core business in globally challenging markets, beating the outlook set at the beginning. Even though, the group’s revenue trend was down 0,4%, but the BT Consumer revenue was up 7%. This was offset by declines in our other lines of business, in part due to regulatory pricing pressures. The normalized free cash flow of £ 2,830m was up 16% and ahead of outlook for the year of above £ 2.6bn. Looking ahead, BT need to improve the provision of Ethernet services and recover more quickly when BT do fail to meet their premises. Investment case The additional debt levels that coming from acquisition of EE may increase the debt risk, but it’s also expected to generate significant operating cost and capex savings around £ 3bn after integration costs. Tactically we would buy the stocks at current price soon after consolidation period to expect a long term return over 12 months as catalysts emerge. Catalyst We believe the company will grow stronger in the near future that reflected on stock prices for uptrend cycle because of a strong discipline has helped them fund investments in their five strategic growth areas. BT announced the proposed acquisition of EE for £ 12.5bn, secured exclusive rights to FA Premier League Football matches for a further 3 years and extended AVIVA Rugby rights. Their proposed full year dividend to shareholders is 12.4p, up 14%. Earning Release Date 2015/2016

Q1 30 June 2015 Q3 31 Dec 2015 Q2 30 Sept 2015 Q4 31 March 2016

Rating BUY * Price (10 Nov 15, £) 4.65 Target price (£) 5.50¹ Target price (%) 18.28 Stop Target price (£) 5.00 Stop Target (%) 7.41 Portfolio Cap Allocation (£) 4,000 Market cap. (£ m) 38,990 ¹Target price is for 12 months. *Outperform PE Ratio (11 Nov 15): 17.16 Dividend: 8.5p (Final) ; 4.4p (Interim) Div. Frequency: Semi Annual EPS: 31.50p

Research Analysts Tjie Ferry Sapta Nugroho 44 74 7967 0132 [email protected] Meilin Gao 44 74 6478 2292 [email protected] Tsan(Can) Gao 44 77 5152 5953 [email protected]


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Recommendation

Strong points • BT is the market leader of telecommunication industry in UK Market which supported with ongoing

acquisition of EE in August 2016, which brings a more cutting-edge competitiveness in a global market. • BT brand is now worth US$ 16.2 billion which a 6% improvement on a year earlier as the 8th most valuable

telecoms brand in the world. • BT has a robust risk management team to control and mitigate the local and global risk in current situation. • BT has run large and complex cost transformation programs by reducing operating costs and capital

expenditures around £ 5.5 billion. • BT’s stock price is currently in uptrend and signaling a bullish cycle after period of consolidation.

Weak points § BT are going to experience an increased cost of debt coming from acquisition of EE by using debt bridge

facility of £ 3.6 billion; unfavorable economic conditions could impact the cost and debt terms. § BT has to deal with the exposed distinct risks coming from EE, for instance network and license investment,

spectrum pricing and regulation, technological change, market acceptance, and network development. § BT may be exposed with the probability of sideways or biased downwards trend relative to the true stock

value in the short-term period due to the large investment programs (e.g. mobility and future voice, fibre, and TV Content).

Industry Overview § Telecoms is the central to the social and economic prosperity of countries across the globe. The business operates

in fiercely competitive markets, with today’s major players working hard to cut costs and drive growth. § The rise of digital creates huge opportunities for the sector, but poses significant threats too. The industry must be

able to respond by creating value-added for their customers and exploring new digital experiences. § The UK’s telecom market is shaped by strong mobile and broadband sectors, and by an innovative broadcast sector

which has pioneered business models for distributing digital content. § The global demand will continue to grow as there is an increasing demand from telecommunication services (e.g.

fixed lines, mobile and broadband, IT Services), and especially in digital products and services. § For telecom companies, the agenda is challenging. They have to adopt an aggressive digitization strategy for a

smooth transition to the selected digital demands in adjacent businesses and broader digital ecosystems.


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Company Overview

§ BT Group plc is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more than 170 countries globally.

§ In UK, BT is also a leading communications services provider, selling products and services to consumers, small and medium sized enterprises. The products ranges from local and long-distance telephone call, international calls to and from the UK, broadband network solutions, web hosting to corporate customers, network ADSL, ISDN, broadband internet access and etc.

§ BT has five major customer-facing lines of business, including: - BT Global Services: provide networked IT service to more than 6,500 large corporations and public sectors - BT Business: provide fixed voice, networking and broadband services to around 900,000 UK SMEs - BT Consumer: largest consumer fixed-voice and broadband provider in the UK - BT Wholesale: EU’s largest wholesale telecoms provider and serves more than 1,400 communication provider

customers in Great Britain, - Openreach: BT focuses on the Fibre broadband network coverage and now UK has the highest coverage of

next generation access (NGA) broadband of the five largest countries in Western Europe. § Regulations in UK (Ofcom) set the conditions such prices in telecommunication industry) in international markets

plays a vital role in BT’s business activities. § In the past few years, the rise of digital creates a large number of opportunities for the telecoms sector in UK with

nearly 17% consumers are willing to pay up to an additional £10 a month for faster more reliable broadband. However, internet and mobile users has low faith to the current service providers in telecom industry, which created the barrier for the telecom industry to move forward.

§ With the strong growth in cash flow and profits, BT has reached an agreement to buy EE, the leading mobile operator in UK to combine the best fixed network with the best mobile network.

§ In order to broaden and deepen the relationship with customers, BT has set up three strategies. The first is to deliver superior customer service by improving speed of delivery and better operating performance. The second is to “transform its cost” by adopting different training programs. The third is to “invest for growth” by investing in five strategic areas believed to deliver sustainable profitable revenue growth – which will deliver value for BT’s shareholders.


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Operational Data

IncomeStatement(GBP£m) 3/14A 3/15A 3/16E

Revenue 18,287 17,979 17,846

EBITDA 5,838 6,017 6,317

OperatingExpenses 15,144 14,500 14,034

(Research&Devcosts) (739) (662) (600)

OperatingIncome 3,143 3,479 3,811

PretaxIncome 2,312 2,645 3,149

IncomeTaxExpense 294 510 723

IncomebeforeXOitems 2,018 2,135 2,426

DilutedEPSbeforeXOitems 0.245 0.26 0.2956

Netincomeadjusted 2,214 2,600 2,572

EPSadjusted 0.282 0.315 0.309

Dividendspershare 0.109 0.124 0.14

payoutratio% 43.60 48.15 45

totalsharesoutstanding 7,919 8,372 8,574

dilutedsharesoutstanding 8,231 8,191 8,210

Cash Flow (GBP£ m) 3/14 3/15 3/16E

NetIncome 2,018 2,135 2,377

depreciation&amortization 2,695 2,538 3,269

othernon-cashadjustment 111 457 284

changesinnon-cashcapital (636) (914) (775)

Cashfromoperatingactivities 4,188 4,216 5,155

disposaloffixedassets 10 100 308

capitalexpenditures (2,356) (2,418) (2,454)

increaseininvestments - - -

decreaseininvestments 4 8 10

otherinvestingactivities (1,264) (1,764) -

Cashfrominvestingactivities (3,606) (4,074) (2,135)

dividendspaid (778) (924) (1,049)

decreaseinlongtermborrowings - (692) (692)

increaseincapitalstocks 75 1,201 1,000

decreaseincapitalstocks (302) (320) (320)

otherfinancingactivities (248) 316 210

Cashfromfinancingactivities (817) (419) (851)

Netchangesincash (235) (277) 2,169

Freecashflow 1,832 1,798 1,920

Freecashflowtofirm 2,333 2,225 1,926

Freecashflowtoequity 2,278 1,206 1,317

Freecashflowpershare 0.23 0.22 0.22

Balance Sheet (GBP£ m) 3/14 3/15 3/16E

totalcurrentassets 5,706 7,471 9,247

cash&nearcashitems 695 434 530

shortterminvestments 1,774 3,523 5,184

accounts&notesreceivable 1,370 1,454 1,387

inventories 82 94 88.68

othercurrentassets 1,785 1,966 2,056

totallong-termassets 19,192 19,720 19,780

longterminvestments 34 44 41.96

grossfixedassets 48,901 48,708 49,130

accumulateddepreciation 35,061 35,203 35,934

netfixedassets 13,840 13,505 13,196

otherlongtermassets 5,318 6,171 6,542

totalcurrentliabilities 7,687 7,708 7,643

accountspayable 2,745 2,835 2,743

shorttermborrowings 1,873 1,900 2,000

othershorttermliabilities 3,069 2,973 2,900

totallongtermliabilities 17,803 18,675 18,813

longtermborrowings 7,941 7,868 7,573

otherlongtermborrowings 9,862 10,807 11,240

totalliabilities 25,490 26,383 27,924

sharecapital&apic 470 1,470 1,720

retainedearnings&otherequity (1,062) (662) (253)

totalshareholders’equity (592) 808 1,103

totalliabilities&equity 24,898 27,191 29,027

Ratio Analysis 3/14 3/15 3/16E

P/Eratio 14.77 16.53 15.4x

P/Sratio 1.63 1.96 2.2x

P/Bratio - 45.38 15.7x

currentratio 0.74 0.97 -

quickratio 0.50 0.70 -

interestcoverageratio 5.46 6.55 -

Margins(%)

EV/EBIT 11.90 12.21 -

EV/EBITDA 6.41 7.06 7.3x

grossmargin 0.00 0.00 0.0x

EBITDAmargin 0.32 0.33 0.4x

operatingmargin 0.17 0.19 0.2x

profitmargin 0.11 0.12 0.1x

ROA 0.08 0.08 0.1x

ROE 0.00 0.00 1.5x

totdebt/capital 1.06 0.92 -

totdebt/equity 0.00 12.09 -

assetturnover 0.74 0.69 -

accountsreceivableturnover 12.77 12.73 - Source: Bloomberg, BT Group Annual Report 2015


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Financial Analysis

I. Company Comparison

*Negative P/E Ratio due to negative growth on Vodafone EPS.

As overall, BT valuation is the most progressive and undervalued of company’s stocks at the moment. With the highest enterprise value and positive growth of EPS and ROE, The Company’s stock price is still the most competitive low amongst the other companies. It indicates a good signal to buy the stocks to secure a long-term capital gain.

II. Company Insight Since 2011, the revenue of BT Group kept on decreasing roughly. In year 2013, BT Retail was divided to two departments, BT Business and BT consumer that helped in increasing to £18,287 million. Revenue decreased 7% including a £206m negative impact from foreign exchange movements and a £9m decline in transit revenue. The key revenue measure, underlying revenue excluding transit that decreased 4%, primarily reflecting lower UK public sector revenue. EBITDA increased 1% and was up 3% excluding exchange movements. Depreciation and amortization decreased 16% as a result of lower depreciation on some UK public sector contracts and the impact of some assets becoming fully depreciated. EBITDA kept growing even the revenue decreases. Options over 13m shares (13/14: 24m shares, 12/13: 24m shares) were excluded from the calculation of the total diluted number of shares as the impact of these is antidilutive. The net income keeps increasing after 2011which means profit attributable to shareholders. In this year, net income increased roughly 5.8% that contributed to the EPS for 14%. In 2015, the sale of redundant copper generated net income of £29m and this indicates no benefit from this in 2015-16.

Company TickerCurrent

SharePriceEnterpriseValue

EV/EBITDA2015

EPS-1Yr(%)

P/E ROEDividend12MYld

BTGroupPLC BT/A:LN 4.75 46,345.04 7.59 3.11 17.15 2.64 2.38VODAFONEGROUPPLC LON:VOD 2.21 90,899.37 7.89 -48.86 N/A* -2.04 4.59TALKTALKTELECOMGROUP LON:TALK 2.38 2,921.23 17.08 151.61 43.47 17.86 5.52

20076

18897

18103 18287 17979

160001700018000190002000021000

3/11 3/12 3/13 3/14 3/15

Revenue

5540

58985786 5838

6017

5200

5400

5600

5800

6000

6200

3/11 3/12 3/13 3/14 3/15

EBITDA

1502.00

2003.00 1948.00 2018.00 2135.00

0.00500.001000.001500.002000.002500.00

3/11 3/12 3/13 3/14 3/15

NetIncome


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BT made a strong progress in 2015 in both business and financial sectors. The EPS increased 14% to 32p. This was delivered after the large all-employee share option plan maturity in summer in 2015, and the equity placing to partly finance the acquisition of EE. Both cases helped in increasing the number of shares issued.

The Company’s stock price is steadily increasing around 27% from the past 5 years with a growing profitability. The P/E range indicates a worth-to-buy stock with moderate ratio and not going overvalued yet. Within the bullish trend, it indicates a good signal to buy the stocks to secure a long-term capital gain. Starting from 2013, BT Group granted quantity of long-term borrowings by issuing bonds maturing in 2014 to 2037, in which the graph shows a minus ROE in 2013 and 2014. This does not mean that the company has a minus income; in contrast, BT Group has a stronger ability in issuing bonds and raise money for business activities. In this way, negative ROE can also give a positive relevance with the company’s growth.

As illustrated in the graph, year on year BT Group had a steady ROA since year 2012 until now, which is around 8%. The reason is that BT’s net income has grown around 19% which closely relative to total assets increased by 14% for this past 4 years. It indicates that the returns gained from operational and investment activities are proportionately allocated to the total assets.

9.57 8.7811.58

14.7716.53

0.00

5.00

10.00

15.00

20.00

3/11 3/12 3/13 3/14 3/15

P/E Ratio

0.210.24

0.27 0.280.32

0.00

0.10

0.20

0.30

0.40

3/11 3/12 3/13 3/14 3/15

EPS

0.77 1.24

(7.44)

(3.41)

2.64

(8.00)

(6.00)

(4.00)

(2.00)

0.00

2.00

4.00

3/11 3/12 3/13 3/14 3/15

ReturnonEquity

0.058

0.084 0.080 0.081 0.082

0.000

0.020

0.040

0.060

0.080

0.100

3/11 3/12 3/13 3/14 3/15

ReturnonAssets


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The dividend of BT Group is paid semi-annually. Lately, a final dividend in respect of the year ended 31 March 2015 of 8.5p per share was paid to shareholders on 7 Sep 2015, taking the full year proposed dividend in respect of 2014/2015 to 12.4p which amount to approximately £1028m (13/14: 880m, 12/13: £749m). This dividend is increasing by 14% compared with 2014. Since 2011, the DPS increased at 13.75% in average each year. Generally, the record date for final dividend is around 14 August and 28 December for interim dividends in each fiscal year.

GeographicSegmentsinGBP (2015) Sales(M)

UK 13,827

Europe,excludingtheUK 2,328

Americas 1,115

AsiaPacific 581

Adjustment 128

BusinessSegmentsinGBP (2015) Sales(M)

BTGlobalServices 6,779

Openreach 5,011

BTConsumer 4,285

BTBusiness 3,145

BTWholesale 2,157

Adjustments 128

Other 74

2.4 2.6 3 3.4 3.95 5.7 6.5 7.5 8.5

0

5

10

15

10/11 11/12 12/13 13/14 14/15

Dividendpershare

Interim Final

UK77%

Europe13%

Americas6%

AsiaPacific…

GEOGRAPHIC SEGMENTATIONSALES2015

Geographically, BT Group mainly focuses on businesses in Europe especially in the United Kingdom. For BT, only BT Global covers a minor business in the US and in Asia Pacific.


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From 1st April 2014, BT Conferencing and BT Security have moved into BT Global Services from BT business. BT Global Services is the largest line of business by revenue, generating 38% of the groups’ external revenue. And BT Consumer is the next largest contributing 24%. Around 60% of Openreach’s revenue is generated from other BT lines of business so its contribution to external group revenue is the smallest; at 11% Total Openreach revenue is equivalent to 28% of group revenue. It is the group’s largest EBITDA contributor, generating 41% of the total, reflecting the return it earns on its extensive network assets. But as a capital-intensive business, Openreach incurs costs relating to depreciation, which are not reflected in this EBITDA contribution. BT Global Services’ EBITDA margin is below those of the other lines of business. At 17%, its proportion of group EBITDA is therefore below its overall revenue contribution.


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BT GROUP PLC (BT/A:LN) Risk Assessment

TypeofRisks Description ImpactsonBT&Consequences Companystrategies

Security&Resilience

InterruptionsonBT'sITsystems,networks&associatedinfrastructure:OperationRisk:Cybersecurityincident,logicalattack,theftofcoppercable&equipment,andetc.;ReputationRisk:fail toprotectiondataofcustomers(business&customer);BT'sowndata,informationandintellectualproperty.

OperationRisk:financialloss&terminationofcontractsresultedinlossofrevenue,contractualpenaltiesandincreasingunplannedcostsofrestorationandimprovement.ReputationRisk:reducefuturerevenues&underminemarketpower.

-Adoptedrobustcontrolframeworkthatfocusesonprevention,supportedbytried-and-testedrecoverycapabilities-Cross-siterecoverystrategy(avoidingtheneedforinvestinginnewsites)-StrengthenedBT'snetworkdefenses&investedinnewtolls,techniquesandskil lstomonitorthreats

Majorcontracts

Revenuesgeneratedfromcomplexandhigh-valuenationalandmultinationalcustomercontracts:-Fail tomanage&meetitscommitmentsundercontracts,aswellaschangesincustomers'requirements-Fail toimplementnewsystems,newtechnologies

-Earningsmaybereducedorcontractsmaybecomeloss-makingthroughlossofrevenue,changestocustomers'business,businessfailureorcontracttermination-Reductionoffutureearnings,profitabil ityandcashgeneration;

-ConductedtrainingstoBTpeopletoidentifyandmanageriskproperly-BT-wideriskgovernance&reporting&localgovernance&riskmanagementprocessprovidethevisibil ityofkeyrisk&mitigationactivities

Pensions

EngagedinasignificantfundingobligationinrelationtoBTPensionScheme(BTPS)-Futurelowinvestmentreturns,lowerinterestrates,highinflation,longerl ifeexpectancy&regulatorychangesmayresultinanincreaseinthecostoffundingofBTPS

-AdverseimpactonBT'sshareprice&creditrating-mayincreaseinBT'scostofborrowingandlimitBT'sfuturefundingabil ity,therebyaffectingBT'sabil itytoinvest,paydividendsorrepaydebtasitmatures

-TheBTPShasawell-diversifiedstrategy,whichreducestheimpactofadversemovementsinthevalueofindividualassetclasses-BT'sfinancialstrengthandstrongcashgenerationprovideaprotectionagainstfuturevariationsinthefundingposition

Growthinacompetitivemarket

Operatesina dynamicandfiercecompetitiveindustryunderastringentregulationcontrolsuchasregulatoryinterventiontopromotecompetitionandreducewholesaleprices.

Fail toachievesustainable,profitablerevenuegrowthcoulderodeBT'scompetitivepositionandreduceBT'sprofitabil ity,cashflowandabil itytoinvestforthefuture

-Mitigaterisksbydeliveringsuperiorcustomerservice-Mitigaterisksbyseekingchangesinregulationtoleveltheplayingfieldhencecompeteeffectivelyinadjacentmarkets.

Communicationindustryregulation

InUK:operateundertheregulationsetbyOfcom(OfficeofCommunication);OutsideUK:undergenerall icensingrequirements

-Fail toincompliancewithregulatoryrequirementsandconstraintscanbringnegativeeffectsonBT'sabil itytocompeteeffectivelyandearnrevenues.-InYear2013/14,BTmightbeexposedwithlossofrevenuearound£5.2bnwithasregulationenforcedalowermarketprice-Activitiesl imitedoutsidetheUKcanreducerevenues

Formedateamofregulatoryspecialists(economists&accountants,legalexperts&externaladvisers)tomonitorandreviewthescopeforchangesintheregulatoryrulesetandpotentialdisputeswithotherCPs.

Businessintergrityandethics

Fail tocomplywitharangeoflocalandinternationalAnti-corruption&BriberyLaws(UK:BriberyAct;US:USForeignandCorruptPracticesAct)

Resultinpenalties,criminalprosecutionleadtoaseriousreputationalriskswithbothinvestorsandconsumers,whichwill resultinalowerfuturerevenueandcashflowgenerated

-Implementedbusinesspractice'TheWayWeWork'toBTemployees-ConductedtrainingprogramforBTemployees-HiredthirdpartytoperformDirectorofEthicsandComplianceforreviewandinvestigation-Implementedstrictpolicytoadheretoapplicablesanctionsandexportcontrollaws

SupplyChain SuppliersofBTfailedtoincompliancewithBT'stradingandethicalpolicies

Sizeoftheimpactfromasupplierfailurecanvary;Contractualbreach,lossofrevenue,sufferspenalties&reputationrisk

-Conducteddualsourcingtoreducerisk-Operatedin-liferiskmanagementprocess"Supplywatch"tominimizedistractiontoitscustomers

ConsumerdataProcessing

Failtoprotectcustomerdata&itsowndata -Regulatoryenforcementaction,fines,classactionsandetc.-Reputationaldamage&financialloss-extracostsresultingfromterminationofcustomercontracts

StaffPrivacy&DataGovernanceteamtomonitortherisksandstaffday-to-dayactivitiestomitigatethisrisk

EEAcquistion

-PoorperformanceforEEbeforeacquisition-UncertaintiesofapprovalofEEacquisition-Increasedcostofdebtforenlargedcompany

-ReduceEE'svalueandhenceresultedinadropinBT'snetassetvalue-Additionalcostsmayincurandhencereduceanticipatedbenefits-Decreasetheabil ityforenlargedcompanyinrefinancingorrepayingitsdebt

-RisksassociatedwithEEaresimilarinnaturetothoseimpactingBTtoday-ProvidedreasonableassurancethatsignificantrisksareidentifiedandaddressedbyoperatingRiskManagementFramework


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Overall Risk Assessment Based on past year’s experiences, BT has built up a comprehensive risk management team on the purpose of monitoring and mitigating different varieties of risks. These risks can be classified as two categories, which are principle risks & financial risks. Principle risks (as stated in above matrix) have the potential to impact BT's business, brand, people, assets, revenues, profits and etc. Among these risks, regulatory risks are considered as a vital role in estimating BT's financial earnings and profits since BT operates in a market where telecoms industry is highly related to government's regulations. In year 5, in overall, regulatory price reductions lowered BT’s revenue and EBITDA by £150m to £200m in the year. However, as next year Ofcom's strategic purposes remain broadly unchanged, like year 2014, regulations in UK would have little impact on the company's financial performance. Furthermore, after a close examination of BT's main business activities (customer based) and its implemented risk strategies as well as its FY14&15 financial reports, we believe risks such as reputation and operational risk could be well managed and minimized under the supervision of BT's well developed risk management team and hence we think these risks would have little impact on BT's next year performance. Apart from principle risks, BT's activities are also exposed to a variety of financial risks, including interest rate risk, credit risk and liquidity risk. BT's interest rate risk arises primarily from BT's LT borrowings in the form of corporate bonds which most of them will mature in next five years or longer. In order to hedge the interest rate risk, BT has entered into cross-currency and interest rate swap agreements with commercial banks and other institutions to vary the amounts and periods for which interest rates on borrowings are fixed. BT's bond rating as of 10 November, 2015 is Baa2 in Moody's, which is quite stable and hence is very unlikely to increase the interest risk and credit risk. In addition, due to the large amount of cash generated from investing activities, BT is capable to manage the payments for loans and debts. Hence we consider BT as a lower credit risk stock compare to the last two years. In the meantime, BT holds cash, cash equivalents and current investments in order to manage the long-term liquidity requirements. At the end of the financial year, BT had undrawn committed borrowing facilities of £1.5bn maturing in September 2019 and a further £3.6bn with an availability period to the earlier of the close of the proposed EE acquisition on August 2016, which is subject to certain restrictions and can only be used to fund the transaction, including transaction costs. As a result, risks on BT's stock does not overweight out stock valuation for next year.


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Technical Analysis In order to provide an extended view of chart analysis, we will see from different time series of 5 Year, 1 Year, 1 Month, and 1 Week period as follows:

Market Cap (GBP m) 52 Weeks Range YTD Return Sub – Industry 38,990 365.1 – 481.75 15.95% Telecom Carriers

5 Year BT Stock Price Chart Analysis

Likely further recovery after bullish break Key Resistance is about to intact. BT Group is mostly being in sideways pattern this year and by the end of October 2015, we can see the 100 day moving average has crossed the 200 day moving average which has caused the share price to increase. It strongly indicates a golden cross as good uptrend signal ahead. Based on the analysis, the stock price is projected to intact a strong resistance line at £ 4.8 to break out later. Indicator is bullish. The MACD has just initiated a sharp bullish crossover. This suggests that the upside momentum is building up. It’s supported by a good market volume to maintain the price stability. Next Resistance at £ 5. The price could potentially head higher towards the next key obstacle at $ 5 as all-time-high price level and creates a new record. By considering a market trend and good fundamental basis, we can expect the price goes higher to the another new price level at £ 5.25 and £ 5.5 as target price to accumulate return around 16% within the next couple months. Immediate Support at £ 4.17. Meanwhile, we advocate a stop-loss exit around/below £ 4, which is slightly below the immediate support line. However, if the projection is more than 12 months, the stop-loss exit can be extended up to the second support line with stronger trend at £ 3.5 and likely to bounce back to break the newly support-turned-resistance of £ 4.17.


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1 Year BT Stock Price Chart Analysis

Likely further recovery after sideways trend Key Resistance is about to intact. After creating W pattern in between Dec 2014 and Jan 2015 which resulted in increment, BT Group is entering the period of consolidation this year with another rebound cycle following a positive trend correction. As we can see the 100 day moving average has crossed the 200 day moving average which has caused the share price to increase. Based on the analysis, the stock price is projected to intact a strong resistance line at £ 4.8 to break out later. Indicator is bullish. The MACD has just initiated a sharp bullish crossover. This suggests that the upside momentum is building up. It’s supported by a good market volume to maintain the price stability. Next Resistance at £ 5. By looking the market trend and good fundamental basis, we can expect a new price equilibrium level at £ 5 with marginal return of 4%. We should consider the all factors for either holding or selling the stocks afterwards. If the market is good and as an investor, we still commit for a longer period of time, then we can hold and wait to hit the next price level. Otherwise, we advocate to sell it in order to protect the profit made. Strong Support at £ 4.4. Meanwhile, we advocate a stop-loss exit around/below £ 4.4 as a strong basis during sideways trend. Then, we can wait and see the market downtrend up to the lowest point or hit the other strong support line (as mentioned in 5 Year analysis). Afterwards, we can buy on weakness to earn profit later


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1 Month BT Stock Price Chart Analysis

1 Week BT Stock Price Chart Analysis

Likely further recovery after period of consolidation First resistance is about to intact. From mid to end of October, we can see the stock price spikes rapidly and sustained at resistance level of £ 4.76 before declining. Then, the trend starts to accumulate and about to intact the closest resistance level at £ 4.7 from current price. As a weak signal, we can buy the stocks at £ 4.7. However, in order to minimize the risk of loss, we advocate to buy the stocks at a stronger resistance level above £ 4.76 or near to £ 4.8. Indicator is bullish. The MACD has just initiated a smooth bullish crossover and being supported by 50 day Moving Average crossed 100 day Moving Average. This suggests that the upside momentum is building up. It’s supported by a good market volume to maintain the price stability. Next Resistance as inline with 5 Year and 1 Year Analysis. Strong Support at £ 4.6. Meanwhile, we can say a stop-loss exit around/below £ 4.6 as a first basis during sideways trend. However, this support price level is not well represented because too much noises for a shorter period of time. As inline with our long time of investment period, we highly suggest to exit at the other strong support line (as mentioned in 5 Year and 1 Year analysis). Afterwards, we can buy on weakness to earn profit later.


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BT GROUP PLC (BT/A:LN) Relative Strength Index (RSI)

The RSI shows the BT commercial side between overbought or oversold by the market. Based on the RSI Chart, we can see an overbought signal by end of October and back to neutral below 70 points which indicates as good basis of buy signal with next target index at/below 60 points. This index also clearly defines the uptrend for BT Stocks. BT’s Comparison on Return amongst Competitors

Security Currency Price Change Total Return Difference Annual Equiv. BT Group PLC GBp 173.53% 224.55% 163.91% 27.05% VOD LN Equity GBp 6.98% 60.64% - 10.12% SKY LN Equity GBp 52.12% 79.57% 18.94% 12.64%

Within a 5 year period, the BT Return increases the highest compared with the other global and UK competitors (i.e. Vodafone and Sky PLC). The trend line is inclining and the others is moderately moving upwards with some sideways pattern. As overall, BT as the market leader with higher return and favorable market condition within telecom industry.


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Experts View

Based on analyst’s recommendations from Bloomberg terminal across large investment banks, a positive indication to buy this stock which is shown as follows:

The current average rating of all analysts who updated within last 12 months is relatively around 4 that indicates a buy signal for BT Stocks at this moment. Moreover, if it’s combined with holds signal position from the investors that bought the stocks couple weeks ago and wait for the sell signal position, we can acquire a bigger rating above 4 that indicates a strong buy signal right now. Therefore, the next phase is waiting the all-time high price created at the market as the sell signal price. In addition, this table below consists of analyst’s recommendations with portfolio absolute return ranking:

Four out of six top rank analysts indicates buy and neutral signal, with more than 75% of all analysts stand at the same position as the top ranks did. It strongly indicates a favorable position to buy the stocks. As a stock analysis sample, we will see it from the 1st rank analyst as follows: The target price is GBp 520 reflected along the yellow line and the actual current price is GBp 461.25.


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For details, this graph clearly points out of all analyst’s opinions over the target price spread during 5 year period:

During uptrend, it shows that current stock price falls between red and yellow area which indicates a perfect time to buy the stocks, because the market is still giving a bullish signal and expected to be sold at higher price of GBp 505 around red area. On the other hand, it would be a different scenario if the market is in bearish condition with downtrend, then it’s better to buy stocks within green area.

Conclusion We consider BT Group PLC as a profitable investment opportunity for Queen Mary Investment Fund as it appears to be one of the most progressive companies in the telecommunication as the market leader for UK market. In a strategic horizon, BT will heavily invest in future trend for digital products and services, while keep maintaining the current core business in fixed lines, mobile and broadband, and IT Services. With the strong growth in cash flow and profits, BT has reached an agreement to buy EE, the leading mobile operator in UK to combine the best fixed network with the best mobile network; and also expected to generate significant operating cost and capex savings around £ 3bn after integration costs. In order to broaden and deepen the relationship with customers, BT has set up three strategies. The first is to deliver superior customer service by improving speed of delivery and better operating performance. The second is to “transform its cost” by adopting different training programs. The third is to “invest for growth” by investing in five strategic areas believed to deliver sustainable profitable revenue growth – which will deliver value for BT’s shareholders. Based on financial performance, BT is growing rapidly in EBITDA around 30% each year with a strong performance going forward. Net income is coming steadily with CAGR around 7% for this past 5 years. BT’s return on equity is growing around 8% next year. Expected full year dividend will increase around 14% in 2016. The Company’s stock price is steadily increasing around 27% from the past 5 years with a growing profitability. The P/E range indicates a worth-to-buy stock with moderate ratio and not going overvalued yet. BT’s stock price is currently in uptrend and signaling a bullish cycle after period of consolidation, it indicates a good signal to buy the stocks to secure a long-term capital gain. As overall, BT has an incredible growth potential which can be realized in the next couple of months makes it a real valuable asset for our portfolio.


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Global Disclaimer: The information and opinions in this report were prepared by Queen Mary, University of London Postgraduate Investment Club (QUMMIF). QUMMIF makes no representation as to the accuracy or completeness of such information. All opinions expressed herein are subject to change without notice. The document is for information purpose only. Descriptions of any futures, options or other derivative products mentioned herein are not intended to be complete and this document is not, and should not be construed expressly or impliedly as, an offer to buy or sell products. QUMMIF does not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this document.

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