BT Group PLC (LSE:BT.A) shares have had their moments, but for now, the line to investors is still crackly.
Citi isn’t mincing words in its latest note. The broker has reiterated its “sell” rating on the telecoms group, nudging its price target up slightly to 140p from 130p, but that’s hardly a vote of confidence.
The message is clear: the challenges facing BT, particularly in its consumer-facing business, continue to mount.
The key concern is Openreach, BT’s infrastructure arm and long-time profit engine.
Citi argues that Openreach is no longer the dependable source of growth that it once was.
The mistake, it says, is to view it as a single unit. In fact, half of its revenues come from within the group, supplying BT’s own broadband services, and half from external customers, such as rival providers using its network.
It’s the external half that’s causing headaches. After years of growth, those revenues began to fall in the current financial year and Citi sees more weakness ahead. Internal demand is still rising, but that growth isn’t translating into profits.
Consumer and business divisions are still seeing earnings forecasts trimmed, and group-level earnings before interest, tax, depreciation and amortisation (EBITDA) continue to fall short.
That doesn’t bode well for monetising the full-fibre rollout.
Meanwhile, conditions in the broader UK telecoms market appear to be worsening, with Citi citing sector-wide commentary pointing to “deteriorating market health”.
BT’s dividend may look generous, but the question is how long that can be sustained without a meaningful pick-up in earnings.
The new chief executive, Allison Kirkby, has promised a sharper commercial focus and cost discipline. Investors will want to see that translate into numbers, and fast.