BT Earnings: Will Cut 30% of Workforce in 6-8 Years; Fair Value Down 13% After Adjusting Forecasts

Shares of narrow-moat BT Group BT.A were down 5% after the group reported full-year results, as the company ended fiscal 2023 in the lower end of its free cash flow guidance of GBP 1.3 billion-GBP 1.5 billion. This was explained by higher capital expenditure in Openreach to accelerate fiber-to-the-home deployment—a decision we support, given the healthy trends in adoption Openreach’s fiber network is seeing, which is resulting in mid-single-digit divisional revenue growth and high-single-digit growth in EBITDA. Group revenue declined by 1% organically year over year, while EBITDA grew by 5% due to the consumer division and growth in Openreach. Although we are trimming our fair value estimate to GBX 200 from GBX 230 to account for lower free cash flow in the medium term, we believe BT’s long-term equity story has ingredients to like.

First, on the consumer division, BT has been able to pass price increases to U.K. customers (an industrywide action that Vodafone and Virgin Media O2 have also followed) with limited churn effects. This has resulted in organic revenue growth of 2% and organic EBITDA growth of 9%, also aided by cost controls. Second, BT recently merged its enterprise and global divisions. This will help reach additional cost synergies, something much needed in these two businesses that have struggled to grow their top lines. Third, BT announced it intends to reduce its global headcount from 130,000 employees today to around 75,000-90,000 in 2028-30. Although there is inherent uncertainty in this forecast given its long-term scope, we highly support this decision as the telecommunication industry generally struggles to grow revenue, so cost controls are paramount. This same week, Vodafone also announced it will cut 11,000 roles in the next three years. Our forecast already assumes a good amount of cost efficiencies in the future.