How are ASX listed FXL, TYR, PPS, EML, APT and WAAX stocks faring amid Covid-19?

As reported by the Confederation of British Industry, the manufacturing output volumes in the three months to June 2020 fell by 57 per cent. The three months manufacturing output fall was 54 per cent in May. The export order books plummeted by 79 per cent in June 2020, which declined by 55 per cent in May. The other key indicators to watch out were:

  • The FTSE-100 was trading at 6,234.86 and was down by 0.92 per cent (on 22nd June 2020, before the market close at 3:00 PM GMT+1).
  • The price of Brent was up by 0.45 per cent to USD 42.38 per barrel (on 22nd June 2020, before the market close at 3:00 PM GMT+1). Despite the decision to cut back oil production by the oil-producing nations, the weakness in oil demand posed as a challenge to keep the prices upbeat.
  • As per the industry experts, it is expected that the British household demand will slightly improve in June.

Given the above developments in the market, we will discuss two telecom stocks BT Group PLC (LON: BT.A) and TalkTalk Telecom Group PLC (LON: TALK). As on 22nd June 2020 (before the market close at 3:00 PM GMT+1), both stocks BT Group and TalkTalk were up by 2.19 per cent and 2.91 per cent, respectively. Though not wholly immune, the telecom sector was better placed than the other sectors due to the surge in the data consumption during the pandemic. Let's analyse the financial and operational performance of two stocks.

BT Group PLC (LON: BT.A) – Slashes final dividend for FY20 to preserve cash

BT Group PLC is a UK based telecommunication company. It is a leading 4G network provider, and it is expanding its 5G network that covers over 80 towns and cities. It has the largest fixed network in the UK. It is expanding its domain to Fibre-to-the-Premises (FTTP) network, and it has reached close to 2.6 million customers.

Financial Highlights for year-end 31st March 2020 as per annual report released on 21st May 2020

The BT Group reported revenue of GBP 22,905 million, the revenue declined by 2 per cent year on year primarily due to decline in revenue of legacy products, strategic divestments of low margin business which was partially offset by growth in new products and services. The Consumer segment reported revenue of GBP 10,388 million, Enterprise, Global, and Openreach added revenue of GBP 6,093 million, GBP 4,361 million and GBP 5,112 million, respectively. The Group Adjusted EBITDA was GBP 7,907 million.

In FY20, the Company made a capital expenditure of GBP 3,960 million of which 52 per cent was invested in the network, 25 per cent was a customer-driven investment, 19 per cent was in Systems & IT and 4 per cent was in Non-network.

The Company has decided to suspend the final dividend for FY20. It has also incurred a charge of GBP 95 million on various balance sheet items due to COVID-19. The Company has sold its non-core business operations such as BT Fleet Solutions and IT business for the legal profession, Tikit and it is also in the process of divesting investments in Latin America and France.

KPIs in FY20

The adjusted revenue was down by 2.7 per cent, which reflects the impact of regulations, declines in legacy products, divestment and reduction of low margin businesses. The decrease was offset by new products and higher rental bases of fibre-enabled products. The adjusted earning per share was 23.5 pence, down by 11 per cent year on year. The Group generated a normalised free cash flow of GBP 2,011 million, which was down by GBP 429 million when compared to last year primarily due to increased capital expenditure, increased interest payments and deposit of UEFA club football rights.

Financial KPIs

Non-Financial KPIs

(Source: Company Presentation)

Liquidity Position

As on 31st March 2020, the Group had a net debt of GBP 17,969 million. It had a cash & cash equivalents of GBP 1,549 million and unused borrowing facility of GBP 2.1 billion. It also had the financial obligation of GBP 6,282 million over one year.

Share Price Performance Analysis

1-Year Chart as at June-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)

The shares of BT Group PLC were trading at GBX 121.95, up by 2.87 per cent (as on 22nd June 2020, before the market close at 2.51 PM GMT+1). The stock had its 52-weeks High and Low of GBX 212.25 per share and GBX 98.39 per share. The Company had a market capitalisation of GBP 11.72 billion.

Business Outlook

The Group has withdrawn guidance for FY21. The Group expects lower revenue from its BT Sports segment, which will be mainly due to closures of pubs & restaurants and reduced advertising. It expects lower revenue in the SME segment due to the reduced business activity and rising insolvencies. The roaming volumes are expected to be down, and fewer new sales are expected; however, it will be offset by lower churn rate. The Company may resume dividend in FY21 or FY22 at an annual rate of 7.7 pence per share. It has a target to expand its FTTP (Fiber to the premises) network to 20 million customers by the end of 2020.

TalkTalk Telecom Group PLC (LON: TALK)- Maintains the final dividend for FY20

TalkTalk Telecom Group PLC is one of the leading Business-to-Business (B2B) telecom services provider. It offers services such as fibre broadband, standard broadband, fixed landline, TV mobile services and data services. It is a FTSE 250 listed stock and serves over 4 million customers.

Financial Highlights for year-end 31st March 2020 as per annual report released on 19th June 2020

In FY20, the Group's total headline revenue was GBP 1,557 million and was down by 3.2 per cent year on year due to lower base and lower voice revenue. The Group reported its revenue under On-net, Corporate and Off-net. On-net is the Group's unbundled network which generated revenue of GBP 1,243 million and was down by 1.8 per cent mainly due to a decline in voice usage and a modest decrease in overall customer base. The Group generated a headline earning of GBP 61 million.

Event Updates

  • The Company will pay a final dividend of 1.50 pence on 7th August 2020; however, it is subject to approval at the AGM to be held on 21st July 2020.
  • In April 2020, the Group refinanced its revolving credit facility to GBP 430 million from previous GBP 640 million. The maturity of the new facility is in November 2024.
  • In April 2020, TalkTalk moved its headquarter to Salford, Greater Manchester from London.
  • In April 2020, Paul Reynolds was appointed as the Non-Executive Director of the Board.
  • In February 2020, the Company refinanced its GBP 400 million 5.375 per cent senior notes due in 2022 by issuing GBP 575 million 3.875 per cent senior notes due in 2025.

Operational Highlights

The Company's performance was underpinned by the strong demand for data from consumers and businesses. The online video streaming, online gaming and cloud storage activity increased during the COVID-19 scenario, which translated to higher data consumption. The Company's third party customer services in South Africa and the Philippines were impacted due to government restrictions, which reduced the number of customer service agents. On 27th March 2020, TalkTalk completed the sale of its fibre asset business to CityFibre for GBP 206 million.

KPIs in FY20

In FY20 the broadband base was 4.22 million which declined by 69k due to churning of low-value Cooper customers. The fibre base was 2.4 million, with a net addition of 605k customers. The On-net churn rate was 1.2 per cent. The On-net average revenue per user (ARPU) was GBP 24.35, which was lower by 69 pence year on year due to lower voice revenue.

Financial KPIs for FY20

(Source: Company Website)

Share Price Performance

1-Year Chart as at June-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)

The shares of TalkTalk were trading at GBX 91.10, up by 3.05 per cent (as on 22nd June 2020, before the market close at 2.53 PM GMT+1). The TalkTalk shares had its 52-weeks High and Low of GBX 124.84 per share and GBX 67.20 per share. The Company had a market capitalisation of GBP 1.01 billion.

Business Outlook

The Company expects to deliver stable headline EBITDA with the impact of coronavirus to be close to GBP 15 million on headline EBITDA. De-levering of net debt/headline EBITDA to an average target of 2.0x is expected to result in a stable cash conversion in FY21. It will also cut back its capital expenditure and lower its working capital. It believes the new connections to be down by 18 per cent in FY21 given the impact of COVID-19; however, the customer churn rate is also expected to be lower. The Company will continue to focus on higher bandwidth fibre business.

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