BT builds fibre momentum but Openreach losses deepen

BT Group's full-year results reveal progress in fibre rollout, adding over one million premises for the fifth consecutive quarter and raising the build target to five million premises in the year to March 2026. However, Openreach continues to experience increasing broadband line losses, widening to 243,000 in the quarter, and faces mounting competitive pressure, leading Citi to maintain a sell rating with a 140p target price despite a slight increase in the current price to 177p. While free cash flow exceeded estimates due to lower capital expenditure, revenue and EBITDA were slightly below consensus.

Analysis

BT Group PLC's full-year results indicate a dichotomous operational landscape: commendable progress in its fibre-to-the-premises (FTTP) rollout is juxtaposed with deteriorating customer retention at its Openreach division and intensifying competitive headwinds. The company consistently added over one million FTTP connections for the fifth consecutive quarter, prompting an upward revision of its build target to five million premises by March 2026 and 25 million by the end of 2026, supported by an anticipated £200 million increase in capital spending. FTTP take-up marginally improved to 36% from 35%. However, these advancements are significantly tempered by Openreach's accelerating net broadband line losses, which surged to 243,000 in the quarter, up from 208,000 in the previous period and 181,000 before that. Financially, while free cash flow surpassed consensus estimates by 5%, aided by lower capital expenditure, both fourth-quarter revenue and EBITDA slightly missed expectations. The competitive environment is becoming more challenging due to alternative network operators and the anticipated market impact from the Vodafone and Three merger. This outlook underpins Citigroup's maintained "sell" rating and a 140p price target, considerably below the current 177p share price. While BT's consumer broadband unit showed a modest net gain of 4,000 lines, reversing earlier losses, the primary investor concern remains Openreach's capacity to mitigate churn amidst rising investment and competition.

Key Decisions for Investors

• Investors should closely scrutinize Openreach's net broadband line figures in upcoming reports, as persistent losses here significantly offset fibre deployment gains and weigh on overall valuation.
• Consider the valuation gap implied by Citigroup's 140p target price against the current 177p, factoring in the impact of £200 million in additional capital expenditure on future free cash flow generation despite current FCF outperformance.
• Monitor BT's strategic initiatives to counter escalating competition from alternative networks and the consolidated mobile market, particularly any announcements regarding potential joint ventures or the carve-out of its international division, which were notably absent in this update.