We Expect Increasing Free Cash Flow From BT Group in Coming Years; GBX 200 Fair Value Estimate

BT Group owns the best and most far-reaching wholesale fixed-line network (Openreach) in the UK. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years, seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the UK, up from less than 10% in 2019. Network duplication is however increasing in the UK as alternative networks like Cityfibre have stolen market share from Openreach stealing 450,000 lines in 2023. Virgin Media aims to cover 80% of the UK by 2026, up from 60% five years ago.