BT reports a 17% rise in pre-tax profits in Q1

This morning BT announced a 17% rise in pre-tax profits and calms investors by clarifying it's exposure to government spending cuts. Nick Raynor, investment adviser at The Share Centre, explains what this means for investors.

"BT reported a 17% rise in pre-tax profits in the first quarter and reiterated its full year outlook.  Pre-tax profits rose to £446m in the quarter ending 30 June compared with £382m in the same quarter last year. Revenue dropped to £5.01bn from £5.24bn previously, in line with forecasts.  It was thought that BT would not perform as well this quarter but these results are better than some expected.

"The most important thing about today's announcement is the clarity BT provided on its exposure to proposed government spending cuts by confirming that its government contracts are restricted to 10% of its revenues.  This does provide a challenge to BT but it should now make investors more comfortable in holding the stock knowing the level of risk.

"It is also worth noting that the Sky Sports package could ensure the retention of customers and that BT also recently announced a forensic tagging system designed to save the millions it loses in copper wire theft.

"The pension deficit has been reduced to £6.6bn (down from £9bn in December 2008) and this is an encouraging figure but it is worth noting that the OFCOM ruling against BT's proposed 4% increase in wholesale prices is a blow to the company as they hoped to use this to further reduce the pension deficit.

"In conclusion BT is finally moving in the right direction for investors, after years of underperformance, but we recommend holding onto the shares to see if BT can prove itself further."