A £10,000 investment in BT Group (LSE:BT.A) shares would now be worth roughly £11,300, combining modest capital growth of 3.2% with dividends. While this return outpaces inflation, it underscores the telecoms giant’s struggle to deliver meaningful shareholder value.
Uncertainty galore
BT’s stock has lagged the FTSE 100, weighed down by of soaring debts, relentless capital demands, and uncertain profitability timelines. The company’s story is one of balancing long-term infrastructure bets against near-term financial strain. This tug of war has left some investors uncertain.
BT’s challenges start with its balance sheet. Net debt ballooned to £20.3bn by late 2024, fuelled by pension obligations and its fibre broadband rollout costing tens of billions of pounds. The pension deficit alone requires £780m in annual payments until 2030, while dividends cost another £800m yearly.
These outflows compete with the capital needed to expand BT’s fibre-to-the-premises (FTTP) network, which aims to reach 30m UK homes by 2030. Though progress is has been significant — 16m premises connected by late 2024 — low customer take-up rates (just 35%) delay profitability. Fibre’s pay-off depends on scale, but BT’s debts and legacy costs keep investors cautious.
Analysts are split
Analysts are split. Optimists highlight CEO Allison Kirkby’s aggressive £3bn cost-cutting plan, targeting lay-offs and operational streamlining to offset fibre costs. Falling interest rates could also ease BT’s debt burden, freeing cash for reinvestment. With shares trading at a relative bargain eight times earnings, some see 25% appreciation potential to the average price target of £1.85.
Yet skeptics, like Citi, warn of deeper risks. The bank recently downgraded BT to Sell, slashing its target to 112p over concerns that Openreach — BT’s infrastructure arm — faces revenue declines by 2026.
Citi also doubts BT can hit its £3bn free cash flow target by 2030, citing unrealistic cost assumptions and shaky consumer pricing power. Investors should also bear in mind that the price-to-earnings figure above doesn’t take net debt into account.
Clear potential, but risks abound
For investors seeking income, BT’s 5.4% dividend yield is clearly tempting, and management insists payouts are sustainable. Unfortunately however, analysts don’t see the payout rising at all. That’s simply a reflection on the company’s financial position.
More generally, the stock’s long-term appeal hinges on executing its fibre vision without drowning in debt. Kirkby’s restructuring aims to transform BT into a leaner, UK-focused infrastructure leader, but legacy pension and workforce costs linger.
As such, the investment hypothesise boils down to patience. BT’s fibre rollout’s a decades-long bet on Britain’s digital future, but shareholders must endure years of financial turbulence. It’s a high-stakes wager, emblematic of the broader dilemma in valuing capital-intensive telecoms: promise versus peril.
Personally, I was pretty bullish on BT when it dropped to £1, but I missed the chance to buy. There’s some margin of safety now, but given recent downgrades I’m a little more cautious than I have been. In short, I should have bought a year ago when I first touted the stock. Either way, this stock is remaining on my watchlist.
This post was originally published on Motley Fool
