Analyst Note| Michael Hodel, CFA |
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.