BT's 27% Surge Last Week Explained

BT reported strong annual earnings results, closing the week 27% higher. However, sustainability remains a key question as the company enters the next stage under revised leadership.

New Leadership, New Direction

In February, BT welcomed its new CEO, Allison Kirkby, who left a mark on the company relatively quickly following last Thursday's earnings report. Although a change in leadership typically signals a shift in a company's strategic direction, investors appeared pleased with the leadership's announcements. The former state telecom monopoly stock price had been declining before the start of the year, but when earnings were released, BT shares rose 7.5% to close the day 17% higher —the best single-day performance since the turn of the century.

The earnings results alone did not drive optimism, as sales increased by 1% and earnings grew by 2%. Guidance also forecasted similar modest trends for the rest of the year. So, what was the cause of investor enthusiasm? Partly, it was an increased dividend due to better-than-expected cash flow. However, Kirkby's goal to double free cash flow over the next five years and focus on opportunities in Britain, building on recent investments, seemed to spur confidence.

Potential for Growth Through Change

While a change in leadership provides an opportunity to set a new strategic direction, BT is a large and complex organisation. It will likely take some time, measured in years in the business world, to fully implement strategic changes - as Kirkby's five-year targets reflect. The company has invested tens of billions in its fibre network expansion and 5G infrastructure roll-out. This work continues with the goal of connecting 25 million additional homes to fibre by 2026. Openreach has become the most successful part of the business - providing services to Sky and Talktalk.

Another aspect of Kirkby's strategy includes the implicit divestment of its international operations (Global Services) - an idea her predecessor, Philip Jansen, had previously tried unsuccessfully to realise. Of course, as a new appointee, Kirkby has more time to negotiate a deal and potentially achieve success. However, the timeline remains uncertain, with any agreement potentially still some months or perhaps years away.

Ultimately, while the new CEO's objectives are undoubtedly positive and welcomed by investors, as evidenced by recent share price increases, whether those gains prove durable will depend on how rapidly the targets can be delivered. Investor patience will also be a key factor over the longer term.

Wedge Pattern Suggests BT Bottom In

BT has slowed down around the 135 GBX mark, where short-term resistance has formed. However, if bullish sentiment sends prices above 148, further gains toward 160 may be expected. If the descending wedge pattern is completed at 101, the bottom for BT's stock price might be in and could pave the way towards 200 or higher. Conversely, ongoing pressure may send the stock sliding back inside the descending wedge's trend below 120. In this scenario, closing the gap at 114 could serve as a bearish signal, indicating further downside.

Source: SpreadEx / BT Group

Key Takeaways

BT reported strong annual earnings results, closing the week 27% higher. Investors appeared optimistic about the new CEO Allison Kirkby's goals to double free cash flow over five years and focus on opportunities in Britain. The company continues substantial investments in fibre and 5G networks. An implicit divestment of international operations could also help the strategy if realised, though any agreement may be years away. Recent share price gains show support for the new objectives, but sustaining increases might depend on timely delivery amid ongoing challenges as the company enters a new strategic phase.