Company Reports

We are pleased with how BT Group is faring so far in fiscal 2024. Revenue and EBITDA grew by 3% and 1%, respectively, in the last quarter. In the consumer business revenue and EBITDA each grew by 3% as BT continues to raise prices in broadband and mobile, a measure that Vodafone and Virgin Media O2 also carried out, limiting customer migrations between operators. Consumer broadband and mobile average revenue per user increased by 5% and 8%, respectively. Openreach saw a 7% increase in revenue, which translated into 11% growth in EBITDA year on year (12% growth last quarter), as the average wholesale ARPU keeps increasing and more clients sign up for fiber-to-the-home plans, where wholesale prices are higher than that for digital subscriber lines. The FTTH take-up rate increased to 34% compared with 33% last quarter. The business division is experiencing a very challenging year, with EBITDA down 17% on the last quarter as costs kept increasing. We are maintaining our GBX 200 fair value estimate and see shares as undervalued.

Once again, we liked how BT Group is doing in a complicated macroeconomic environment. Results were slightly ahead of company-complied consensus expectations and shares are up 5% early on Nov. 2. The consumer and Openreach divisions continue to lift revenue and EBITDA at the group level, which grew 2% and 3% this quarter to GBP 5.3 billion and GBP 2.1 billion, respectively. BT Group and the remainder of U.K. telecommunication companies are doing well in managing inflationary pressures by passing on price increases to customers. Postpaid mobile and consumer broadband average revenue per user grew by 9% and 4% year over year, respectively, with almost no effect on churn rates. The firm is also doing well in keeping operating costs under control, up 2.3% excluding TV program rights for the first 6 months, which we consider satisfactory given the high inflationary environment. We maintain our narrow moat and GBX 200 fair value estimate for BT Group and see the shares as undervalued.

We liked BT Group's first-quarter trading update, with both revenue and EBITDA growing nicely at 4% and 5%, respectively. We are pleased with how BT has been performing recently and also with its medium-term outlook. First, BT is passing price increases to U.K. customers in the consumer division (an industrywide action that Vodafone and Virgin Media O2 have also followed) with limited churn effects in both mobile and broadband, which is resulting in healthy revenue and EBITDA growth. Second, Openreach keeps performing very strongly, rapidly deploying fiber-to-the-home across the country (covers 44% of the U.K. at the end of this quarter) and bringing in more wholesale customers (orders up 34% year over year). Openreach wholesale contracts with its customers are linked to CPI, offering a very good hedge against inflation. On top of this, Openreach shares part of the average revenue per user service providers charge to its customers, which we see as “free” revenue that flows directly to Openreach’s bottom line. Openreach recorded 8% and 12% growth in revenue and EBITDA this quarter, respectively, with EBITDA margins expanding 130 basis points from last quarter. Last, BT announced three months ago its intention to reduce its global headcount from 130,000 employees currently to around 75,000-90,000 in 2028-30—something we like as telecommunication companies need to keep their cost bases streamlined due to their general struggles to increase the top line. We are maintaining our GBX 200 fair value estimate and see the shares as significantly undervalued, trading in GBX 120 territory.

BT Group’s strategy is to own the best and most far-reaching wholesale fixed-line network (Openreach) in the U.K. to attract as many service providers as possible. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years, seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the U.K., up from less than 10% in 2019. Openreach’s network will likely be the only available option for around 20% of U.K. households (Virgin’s network covers 60% of the U.K., with expansion plans to 80% by 2026. CityFibre aims for 8 million in 2025 or 30% of the U.K.).

Shares of narrow-moat BT Group were down 5% after the group reported full-year results, as the company ended fiscal 2023 in the lower end of its free cash flow guidance of GBP 1.3 billion-GBP 1.5 billion. This was explained by higher capital expenditure in Openreach to accelerate fiber-to-the-home deployment—a decision we support, given the healthy trends in adoption Openreach’s fiber network is seeing, which is resulting in mid-single-digit divisional revenue growth and high-single-digit growth in EBITDA. Group revenue declined by 1% organically year over year, while EBITDA grew by 5% due to the consumer division and growth in Openreach. Although we are trimming our fair value estimate to GBX 200 from GBX 230 to account for lower free cash flow in the medium term, we believe BT’s long-term equity story has ingredients to like.

BT Group’s strategy is to own the best and most far-reaching wholesale fixed-line network (Openreach) in the U.K. to attract as many service providers as possible. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the U.K., up from less than 10% in 2019. Openreach’s network will likely be the only available option for more than 40% of U.K. households (Virgin’s network only covers 16 million households and CityFibre aims for 8 million in 2025).

Narrow-moat BT Group’s revenue declined by 1% organically in the third fiscal quarter of 2023, as tailwinds in the Openreach and consumer divisions (the strongest businesses in our view) were offset by declines in the enterprise and global divisions and by other one-off effects. However, EBITDA managed to grow by 3% thanks to cost controls and the removal of costs from BT Sport, which has been transferred to a joint venture with Eurosport UK. We maintain our GBX 230 fair value estimate.

BT Group’s strategy is to own the best and most far-reaching wholesale fixed-line network (Openreach) in the U.K. to attract as many service providers as possible. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the U.K., up from less than 10% in 2019. Openreach’s network will likely be the only available option for more than 40% of U.K. households (Virgin’s network only covers 16 million households and CityFibre aims for 8 million in 2025).

Lots of moving parts in BT Group half-year results. While financial performance was in line with company-provided consensus, shares are declining 6% at the time of the writing. We believe this is mainly the result of the Federal Reserve's 75 basis points increase in interest rates yesterday, with an indication that rates might peak at a higher level than expected. The British Pound has declined more than 2% against the U.S. dollar in the past 24 hours as a result. We believe BT share price is more affected than other U.K. equities given it operates in leveraged and capital-intensive industry. However, we are pleased with how fundamentals have performed, with a 60 basis points EBITDA margin expansion driven by satisfactory performance in the consumer division and Openreach. We are maintaining our GBX 230 fair value estimate, with the shares trading in deep value territory and our forecasts being more conservative than consensus.

We are satisfied with the results printed by BT Group in its first fiscal quarter, with 1% and 2% growth in sales and EBITDA, respectively. The consumer and Openreach divisions were the main drivers of growth, offset by the enterprise unit. Despite the results being acceptable and management maintaining guidance, shares are down more than 7% at the time of the writing due to weak performance in the enterprise unit, which had a EBITDA margin decline from 33.3% one year ago to 26.3%. This was due to costs being hit by inflation, but also an inability to pass price increases on to customers. Management expects to turn this trend around during the year, but the enterprise segment has been challenged for a long time. We maintain our GBX 230 fair value estimate for now, given our 2023 EBITDA forecast is conservative and Openreach, BT’s largest division, is performing better than our expectations. However, we will continue to monitor the performance of the enterprise division through the year.

BT Group's fourth-quarter results came in as expected, with sales and EBITDA aligned with consensus expectations. While sales declined by 2% in the quarter, adjusted EBITDA managed to grow by 3% thanks to ongoing cost efficiencies. Our sales forecast for 2023 is aligned with guidance, while our EBITDA remains slightly more conservative, at GBP 7.7 billion versus the GBP 7.9 billion guided, given the overall macroeconomic uncertainty and the continuous headwinds in the global and enterprise divisions. We are maintaining our GBX 230 fair value estimate and believe the shares offer a 25% upside at this point.

BT Group’s strategy is to own the best and most far-reaching wholesale fixed-line network (Openreach) in the U.K. to attract as many service providers as possible. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years, seems satisfactory for BT and has caused fiber-to-the-home, or FTTH, investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the U.K., up from less than 10% in 2019. Openreach’s network will likely be the only available option for more than 40% of U.K. households (Virgin’s network only covers 16 million households and CityFibre aims for 8 million in 2025).

We are relaunching coverage of BT Group with narrow moat (efficient scale) and stable moat trend ratings, and fair value estimate of GBX 230, which represents 22% upside compared with current share prices.

BT’s third-quarter fiscal 2022 results were broadly in line with our expectations. Management trimmed revenue expectations for the year, calling for a decline of around 2% rather than flat with the prior year. Our forecast had already called for revenue to dip based on trends during the first half of the fiscal year. Profitability is tracking ahead of our estimates, though, and BT remains resolute that EBITDA will hit GBP 7.9 billion in fiscal 2023, as CPI-linked price increases roll through and cost-cutting efforts bear fruit. We’ve increased our expectations for fiscal 2023 and beyond, taking our fair value estimate up to GBX 215 from GBX 200.

We believe BT’s Openreach unit is well positioned to widely deploy fiber across the United Kingdom due to its broad geographic reach and deep wholesale relationships. We expect the firm will need several years to rebuild its network and re-establish it business, however. A massive pension obligation creates additional uncertainty for BT shareholders.

BT’s fiscal second quarter didn’t include any major surprises, but the firm continues to pepper the market with optimism concerning its longer-term prospects. Management claims that cost efficiencies and experience gained thus far will allow it to deploy fiber 15% more cheaply than previously expected, cutting peak annual capital spending to GBP 4.8 billion from GBP 5 billion over the course of the network buildout. BT also expects the shift to fiber will cut operating expenses by GBP 500 million annually by the end of the decade, while general ongoing efforts to cut costs deliver an incremental GBP 1 billion in reductions by fiscal 2024, a year earlier than planned. With confidence in the fiber buildout and the ability to increase prices on inflation-linked services as much as 7%-8% next year, BT also reinstated its dividend payout.

We believe BT’s Openreach unit is well positioned to widely deploy fiber across the United Kingdom due to its broad geographic reach and deep wholesale relationships. We expect the firm will need several years to rebuild its network and re-establish it business, however. A massive pension obligation creates additional uncertainty for BT shareholders.

We believe BT’s Openreach unit is well positioned to widely deploy fiber across the United Kingdom due to its broad geographic reach and deep wholesale relationships. We expect the firm will need several years to rebuild its network and re-establish it business, however. A massive pension obligation creates additional uncertainty for BT shareholders.

BT’s fiscal first-quarter results were a bit weak, with revenue declining 3.4% year over year despite lapping the onset of the pandemic in 2020. Management continues to sound an optimistic tone, however, believing that revenue is poised to rebound as pricing changes take hold and demand fully recovers. The firm also faced questions related to Virgin Media O2’s announcement that it plans to overlay its entire network with fiber over the next few years. While retail competition with Virgin wouldn’t be new, the cable company has indicated that it is pursuing wholesale relationships with carriers like Vodafone and Sky. We agree with BT management that Virgin is unlikely to make a major move into wholesale, though the possibility is a risk. We don’t expect to materially change our GBX 200 fair value estimate.

BT continues to sound an optimistic tone even as fiscal fourth-quarter earnings were modestly disappointing. The firm increased its fiber network buildout plans, now calling for 25 million homes passed by 2026, up from prior expectations of 20 million by the later part of the decade. Management also expects revenue in fiscal 2022 will be flat as regulatory and pandemic-related headwinds abate. With steady gains from cost-cutting, BT believes it can grow EBITDA modestly during the year on its way to hitting its previously disclosed target of GBP 7.9 billion in fiscal 2023 (versus fiscal 2021 EBITDA of GBP 7.4 billion). Management expects tax benefits and slightly more favorable pension contributions to help fund the acceleration in network construction, but free cash flow will likely drop sharply over the next few years as capital spending ramps up. We believe our expectations remain modest and don’t plan to significantly change our GBX 200 fair value estimate. While uncertainty is very high, we believe the stock is attractive.