FTTP Expansion And Digital Adoption Will Fuel Secular Progress

Key Takeaways

• Accelerated fiber rollout, digital infrastructure leadership, and advanced service innovation position BT for outsized revenue, ARPU, and long-term topline growth ahead of market expectations.
  
• Aggressive cost transformation, infrastructure monetization, and industry consolidation drive significant margin expansion, free cash flow growth, and enhanced shareholder returns.
  
• Declining legacy revenues, underinvestment in fibre, intensifying competition, and pension liabilities threaten BT's growth prospects, market share, and ability to deliver strong shareholder returns.

Catalysts

Provides communications products and services in the United Kingdom, Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• While analyst consensus sees BT's fiber rollout and take-up as leading to steady ARPU and revenue growth, BT is now accelerating its build by up to 20 percent this year, aiming for a national FTTP footprint ahead of plan, which could result in a greater-than-expected revenue and earnings inflection as full fiber take-up and nationwide coverage reach critical mass years sooner than the market anticipates.
  
• Analyst consensus views cost transformation as margin supporting, but BT's progress is both ahead of schedule and compounding-with sharp headcount reductions, heavy automation, and dramatic IT rationalization driving structural opex removal, positioning the company for substantial net margin expansion and free cash flow growth that could exceed current long-term forecasts.
  
• The relentless adoption of digital infrastructure across UK society, combined with surging demand from remote work and cloud-enabled devices, positions BT as the unique scaled provider able to capture incremental wallet share from both consumers and enterprises-supporting robust, multi-year topline growth well above UK economic GDP trends.
  
• BT's pioneering investments in advanced network services, including seamless next-gen connectivity (WiFi 7, converged fiber and mobile, AI
• and quantum-secure solutions), unlock high-margin value-add opportunities-enabling outsized ARPU growth per customer and accelerating earnings beyond consensus expectations.
  
• The clear shift toward industry consolidation and asset monetization-through divesting non-core assets and capitalizing on infrastructure partnerships-creates optionality for rapid balance sheet improvement and tactical capital deployment, laying the groundwork for accelerated buybacks or dividend increases, directly benefiting per-share value and total shareholder returns.

BT Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on BT Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming BT Group's revenue will decrease by 0.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.2% today to 11.1% in 3 years time.
• The bullish analysts expect earnings to reach £2.3 billion (and earnings per share of £0.19) by about July 2028, up from £1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 18.5x today. This future PE is lower than the current PE for the US Telecom industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 1.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

BT Group Future Earnings Per Share Growth

Risks

• The continued decline in legacy fixed-line telephony and traditional voice products is shrinking BT Group's top-line revenue, and this is forecast to persist until the closure of the PSTN in 2027, offsetting growth in new services and creating a drag on earnings.
  
• Persistent underinvestment in full-fibre rollout versus aggressive altnet competitors such as CityFibre and Virgin Media O2 increases the risk of BT losing market share in broadband, which would undermine future revenue growth and margin expansion.
  
• The international business segment experienced a 9 percent revenue decline due to weaker trading and foreign exchange headwinds, and its ongoing transformation and carve-out could add further financial pressure and restructuring costs, weighing on profitability.
  
• Ongoing pension deficit liabilities and required contributions continue to depress BT's free cash flow, limiting capital available for reinvestment and dividends which constrains shareholder returns.
  
• Intensifying competition from altnets and the potential for regulatory interventions or price controls place downward pressure on ARPU growth and profit margins, threatening BT's ability to sustain revenue growth and defend market share, especially as the commoditisation of core telecom services continues.

Valuation

• The assumed bullish price target for BT Group is £2.99, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of BT Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.99, and the most bearish reporting a price target of just £1.18.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £20.7 billion, earnings will come to £2.3 billion, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 7.0%.
• Given the current share price of £1.99, the bullish analyst price target of £2.99 is 33.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.