BT Group PLC (LSE:BT.A) is still one of the "least preferred" names on UBS’s list of telcos, with the Swiss bank’s analysts pointing to revenues that missed expectations and suggesting that the pressures will continue to build in 2025.
The telecoms firm today reported a small increase in third-quarter profit as cost savings offset a decline in revenue. Reported pre-tax profit climbed 1% to £427 million in the three months to December, as adjusted earnings grew 4% to £2.1 billion.
Revenue slipped 3% to £5.2 billion in the meantime, as record fibre rollout and price increases were offset by challenging conditions outside of the UK.
UBS analysts, in a note, reacted by saying: “We think revenue pressures will build over the coming quarters amid lower CPI-linked price rises and rising broadband infrastructure competition.
“Specifically, BT has material exposure to two large clients (Sky/TalkTalk) that are shifting business away from BT/Openreach.
“Continued weak trends at TalkTalk and limited [free cash flow] generation could see TalkTalk return to late payments to Openreach and we think there is a chance [Virgin Media O2] could announce its first wholesale broadband client in the coming months.”
UBS noted that the main revenue miss came in the consumer segment, with particularly weak sales in equipment, along with a decline in broadband sales.
“We think competition in the broadband market has stepped up given the introduction of One Touch Switching and rising competition from altnets,” the Swiss bank said.
“With Openreach line losses annualising at more than 750,000 (-4%) and the benefit of Openreach price rises fading from +4.6% in April 2024 to +2.3% in April 2025, we think Openreach revenues will turn negative from next year and Sky will start shifting volumes over to CityFibre from mid-2025.”
BT’s best available defence against ‘altnet’ competition is an accelerated rollout of superfast fibre and/or a reduction in pricing, both of which would not be without pain.
In its own statement this morning, BT highlighted that Openreach's fibre-to-the-premises build rate had surpassed one million homes for a fourth consecutive quarter and that over half of the UK was now connected.
Efforts to cut costs remained on track, meanwhile, with BT citing lower energy usage, labour costs and a reduction in Openreach repair volumes.
“Our ongoing modernisation continues at pace,” chief executive Allison Kirby said, “benefits from our cost transformation more than offset lower revenue outside the UK and weak handset sales”.
“We continue to make progress towards becoming fully focused on the UK, with the sale of our data centre business in Ireland.
“BT's continued delivery means we remain on track to deliver our financial outlook for this year and our cash flow inflection to [around] £2.0 billion in 2027 and £3.0 billion by the end of the decade.”