BT Group plc (LON:BT.A) (LSE:BT.A.L) has released an update into its Italian business to the stock market today. The investigation into the financial position of its Italian business is now mostly complete. The adjustments identified have increased from the £145 million announced in the H1 update to a total of around £530 million.
This is expected to result in a reduction in Q3 adjusted revenue and adjusted EBITDA of around £120 million. It is also set to slash Q3 normalised FCF by around £100 million. For FY2017 as a whole, BT expects a decrease in adjusted revenue of around £200 million, in adjusted EBITDA of around £175 million and of up to £500 million in normalised FCF, compared to previous guidance. For FY2018 it expects a similar annual impact to adjusted revenue and adjusted EBITDA as in FY2017, with the EBITDA impact flowing through to normalised FCF.
Investors in BT will obviously be disappointed with the news. It has sent the company shares lower by 15% at the time of writing. While it may be difficult to find positives for the company’s investors today, the remainder of the business is at least performing in line with expectations. The consumer-facing business delivered continued volume and ARPU growth and EE achieved revenue growth for the first time.
However, BT’s news flow is likely to be dominated by the Italian investigation in my opinion. This could mean it underperforms sector peers Vodafone Group plc (LON:VOD) (LSE:VOD.L), SKY PLC (LON:SKY) (LSE:SKY.L) and Talktalk Telecom Group PLC (LON:TALK) (LSE:TALK.L) in the short run at least. In 2017, Vodafone shares are 16% ahead of BT’s stock, SKY’s shares are 17% ahead and Talktalk’s stock is 5% up on BT’s shares.
In my view, BT’s shares could fall more than they already have done today. Therefore, although I feel the business has long term investment appeal, I think it’s one to avoid for the time being – at least until investor sentiment has settled down.