Analysts have long debated on how much BT (LSE:BT.A) shares should be worth. The company has invested billions in the roll-out of fibre-to-the-premise, sacrificing near-term earnings for long-term profitability. In turn, this has resulted in a fair degree of volatility.
Over the past 12 months, the BT share price is up 20%. As such, a £10,000 investment a year ago would be worth £12,000 today, plus around £600 in dividends. That’s a market-beating return, although the stock did surge more than 50% from its lows in April to its highs in November.
What’s behind the growth?
BT gains over the past 12 months have been driven by several key factors. The company’s new(ish) CEO, Allison Kirkby, has implemented aggressive cost-cutting measures, targeting £3bn in annual savings by 2029. This follows the successful achievement of a previous £3bn cost-saving goal a year ahead of schedule.
BT has also reached peak capital expenditure on its full-fibre broadband rollout, signalling a shift towards increased cash flow generation. The company expects to reduce capital expenditure by around £1bn post-peak build, leading to a projected doubling of normalised free cash flow over the next five years.
These initiatives, arguably coupled with the valuation, have attracted significant investor interest, notably from Mexican billionaire Carlos Slim. Through his family business Inbursa, Slim has increased his stake in BT to 4.3%, investing approximately £550m in total. This move is seen as a vote of confidence in Kirkby’s strategy and BT’s future prospects.
The FTTP promise
FTTP could be a game-changer for BT, offering significant advantages over traditional broadband technologies. With speeds up to 1gbps, FTTP provides faster and more reliable connectivity, meeting the growing demand for high-bandwidth services. This technology enables BT to future-proof its network, supporting the transition to an all-IP future.
Moreover, FTTP offers superior performance and reliability than traditional wiring. This can lead to increased customer satisfaction and reduced churn. The increased reliability will also allow the company to reduce its maintenance workforce, leading to considerable operational expenditure savings.
In short, this investment could drive long-term revenue growth and strengthen BT’s competitive position in the broadband market. However, the debate concerns whether the huge investment will truly be worth it. Clearly the company thinks so, but some analysts are less convinced.
BT’s consensus
The consensus among 17 analysts for BT Group is Outperform with an average target price of 190.6p, representing a 36.7% premium from the last close of 139.4p (27 January). The highest target is 290p, while the lowest is 110p. This wide range of targets reflects varying opinions on BT’s future performance, with a generally positive outlook.
It’s an interesting stock that has been on my watchlist for almost a year. At 10.1 times forward earnings — falling to 8.6 times for 2026 — and a 5.6% dividend yield, it could be an attractive opportunity. However, I’m keeping my powder dry for now.
This post was originally published on Motley Fool
