BT Earnings: Investors Welcome Medium-Term Outlook; Maintaining Fair Value Estimate

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.