BT Group PLC (LSE:BT.A) is promising growth. Investors, however, are watching the cost.
The telecoms group’s full-year results offered little to shift sentiment, despite guidance broadly in line with consensus.
UBS, which maintains a 'sell' rating and a 120p price target, nearly 30% below the current share price, said the group faces weakening trends across its core operations and a growing mismatch between revenue pressures and capital commitments.
Group revenue for the fourth quarter fell 0.6% to £5,049 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) coming in at £1,974 million, narrowly missing consensus even after accounting for one-off gains in the consumer division.
A real drag
The real drag, though, was Openreach, where line losses accelerated to 243,000, worse than both previous quarters and market expectations.
Openreach revenues, which had still grown modestly in the previous quarters, rose just 0.1% in the fourth quarter.
UBS expects those revenues to turn negative this year, pointing to the impact of lower inflation-linked price increases and growing competition from alternative broadband providers.
Sky is also expected to begin shifting volumes away from Openreach, putting further pressure on fixed-line economics.
Capex: A shifting target
The capital expenditure outlook has shifted again. BT now plans to ramp up its fibre rollout to 5 million homes per year, lifting annual capital expenditure to £5 billion, higher than previously forecast.
While a £100 million copper sale in the current year will help offset the cost, UBS warns the expanded build-out target of 25 to 30 million premises means spending may remain elevated beyond 2027.
The strategy is defensive. UBS views the acceleration in fibre investment as a response to rising broadband competition, with BT aiming to entrench its infrastructure position before market share erosion worsens.
Meanwhile, potential disruption looms in mobile, where speculation around Octopus Energy entering the market raises the prospect of new low-cost players targeting BT’s base.
Reality-check time?
Despite reaffirming long-term free cash flow guidance, £2 billion in 2027, rising to £3 billion by decade’s end, the bank questions whether these targets remain realistic.
BT achieved £900 million of cost savings in the year just ended, but UBS argues this progress is merely offsetting external pressure, rather than restoring momentum.
Recent gains in the share price have been supported in part by Bharti Enterprises converting part of its 24.5% derivative stake into equity. UBS suggests this technical tailwind may soon fade, leaving fundamentals to do the heavy lifting.
In a market where capital is becoming more expensive and competition more aggressive, the investment case for BT rests on defending a high-spending strategy with no clear path to revenue growth.
Cost cuts and operational delivery help, but the risk remains that the bill will land before the benefits.
The shares were up 2% at 172.55p.