Company Reports

BT delivered flat year-on-year adjusted revenue growth and a 1% decline in adjusted EBITDA, reaching GBP 4.3 billion and GBP 2.0 billion, respectively.

BT Group is the UK's incumbent telecom operator, owning the most wide-reaching wholesale fixed-line network (Openreach) in the country. 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 aims to cover 25 million homes with FTTH by 2027, or 90% of the country, up from less than 10% in 2019. However, network duplication is increasing in the UK as alternative networks like CityFibre or Community Fibre have taken market share, with Openreach losing 825,000 broadband lines in fiscal 2026, mainly low-speed lines.

BT’s commitment to cost discipline has delivered tangible results in fiscal 2026, with EBITDA holding flat despite a 4% revenue decline and a 1% service revenue decline. We are impressed by the 6% decline in total operating costs, from GBP 17.87 billion in fiscal 2025 to GBP 16.57 billion this year.

BT Group is the UK's incumbent telecom operator, owning the most wide-reaching wholesale fixed-line network (Openreach) in the country. 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 aims to cover 25 million homes with FTTH by 2027, or 90% of the country, up from less than 10% in 2019. However, network duplication is increasing in the UK as alternative networks like CityFibre or Community Fibre have taken market share, with Openreach losing 825,000 broadband lines in fiscal 2026, mainly low-speed lines.

BT’s cost transformation remains a crucial floor for EBITDA and is offsetting poor sales performance across the board. A 4% year-to-date group sales decline has been translated into an astonishing flattish EBITDA growth thanks to BT’s cost focus.

The Morningstar Developed Markets Europe Communication Services Index has returned 23.7% year to date, thanks to renewed hopes for consolidation and modestly improving conditions in markets like Italy.

BT reported second-quarter revenue of GBP 4.9 billion, down 3% year over year and broadly in line with consensus. Cost-control measures continued to provide margin relief amid top-line pressure, resulting in adjusted EBITDA of GBP 4.9 billion, 1% ahead of expectations and in line with last year.

BT Group fell short of revenue consensus in the first quarter, with adjusted revenue down 3% year on year, but delivered on EBITDA, which declined just 1% thanks to Openreach’s 5% growth.

BT Group is the UK's incumbent telecom operator, owning the most wide-reaching wholesale fixed-line network (Openreach) in the country. 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 aims to cover 25 million homes with FTTH by 2026, or 90% of the country, up from less than 10% in 2019. However, network duplication is increasing in the UK as alternative networks like CityFibre or Community Fibre have taken market share from Openreach, gaining 500,000 lines in 2024.

We are updating our moat ratings for eight European telecom stocks. European telecom companies lack the scale and pricing of international peers. Network redundancies and little cross-border synergies are common, and the regulatory landscape is not supportive of competitive advantages.

BT Group is the UK's incumbent telecom operator, owning the most wide-reaching wholesale fixed-line network (Openreach) in the country. 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 aims to cover 25 million homes with FTTH by 2026, or 90% of the country, up from less than 10% in 2019. However, network duplication is increasing in the UK as alternative networks like CityFibre or Community Fibre have taken market share from Openreach, gaining 500,000 lines in 2024.

BT Group’s full-year results were broadly in line with our expectations, with revenue of GBP 20.4 billion and adjusted EBITDA of GBP 8.2 billion for the year, down 2% and up 1%, respectively.

Narrow-moat BT Group is standing its ground in fiscal 2025 thanks to its cost cuts. Adjusted revenue for the first nine months declined by 3%. However, BT managed to transform this into 2% EBITDA growth thanks to cost reductions in personnel and energy. Openreach keeps losing wholesale broadband lines, but revenue keeps increasing because fiber-to-the-home lines have higher prices than the lost lines (ADSL/VDSL). Overall, the number of lost lines reached 208,000 this quarter, compared with an average of 189,000 in the previous two quarters. Our forecasts for Openreach revenue and EBITDA are not overly demanding in the long term, at a 1.4% compound annual growth rate and 1.8% CAGR, respectively, over the next decade. According to management, 80% of the lost lines are in areas where BT has no FTTH, which is why BT is trying to install them as fast as possible. We maintain our GBX 190 fair value estimate with our medium-term forecasts being slightly more conservative than company-compiled consensus.

There were lights and shadows in BT Group's half-year results. On the one hand, management reduced meaningfully its revenue outlook for fiscal 2025, from guidance of 0% to 1% growth previously to a 1% to 2% decline. Investors didn’t like this news, with shares down 5% at the time of writing to GBX 135. On the other hand, BT maintained its GBP 8.2 billion EBITDA guidance and its GBP 1.5 billion of normalized free cash flow guidance. BT’s recent cost-cutting efforts have achieved a net reduction of operating expenses of 2.6% in the past 12 months, including a reduction in its number of employees by 10,000, way above other telecommunication peers. Management also raised its dividend to 2.40 pence per share from 2.31 one year ago, which aligns with our thesis that BT can do moderate dividend increases as long as it keeps focused on reducing costs and capital expenditures keep gradually coming down. We trim our fair value estimate to GBX 190 from GBX 200 after adjusting our near- and medium-term revenue estimates but still see BT shares as undervalued. Overall, we like management’s long-term cost-cutting plan, a key factor for medium-term EBITDA growth.

BT Group owns the best and most far-reaching wholesale fixed-line network (Openreach) in the UK. 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 UK, up from less than 10% in 2019. Network duplication is however increasing in the UK as alternative networks like Cityfibre have stolen market share from Openreach stealing 450,000 lines in 2023. Virgin Media aims to cover 80% of the UK by 2026, up from 60% five years ago.

BT Group trading update was slightly worse than expected in our view, although still in line with management's outlook for the full year. Overall revenue declined by 2% to GBP 5.05 billion, mainly dragged by the consumer segment, which saw a 1% sales decline compared with the healthy 4% growth seen in fiscal year 2024. This, however, was expected by management, which three months ago commented that consumer revenue growth should be stronger in the second half of the year. As such, we are not overly worried about this weakness. Competition from mobile-virtual-network-operators seems to have picked up slightly, with Tesco Mobile adding 200,000 mobile clients last year, for instance. The group's EBITDA grew by 1% to GBP 2.03 billion, mainly supported by Openreach. Management has maintained its 2025 yearly outlook. We are maintaining our GBX 200 fair value estimate.

BT Group owns the best and most far-reaching wholesale fixed-line network (Openreach) in the UK. 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 UK, up from less than 10% in 2019. Network duplication is however increasing in the UK as alternative networks like Cityfibre have stolen market share from Openreach stealing 450,000 lines in 2023. Virgin Media aims to cover 80% of the UK by 2026, up from 60% five years ago.

Although BT’s full-year results fell short of consensus expectations, the market welcomed increased medium-term free cash flow guidance and shares climbed 9% in early trading on May 16. BT expects “normalized” free cash flow of GBP 1.5 billion, GBP 2.0 billion, and GBP 3.0 billion in fiscal 2025, 2027, and 2030, respectively, compared with GBP 1.3 billion this year. The increase will come from lower capital expenditure once Openreach’s fiber-to-the-home rollout nears completion as well as strong cost reductions, given BT plans to reduce its staff from 120,000 currently to 75,000-90,000 by the end of the decade. The board also approved a 3.9% dividend increase to GBX 8 per share, which we see as maintainable with the possibility of growing in the future. We maintain our GBX 200 fair value estimate, and shares remain undervalued.

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.