BT Earnings: Cost Discipline Drives Resilience, Raising Fair Value

Key Morningstar Metrics for BT Group

• Fair Value Estimate
  : GBX 230
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Medium

What We Thought of BT Group’s Earnings

BT’s commitment to cost discipline has delivered tangible results in fiscal 2026, with EBITDA holding flat despite a 4% revenue decline and a 1% service revenue decline. We are impressed by the 6% decline in total operating costs, from £17.87 billion in fiscal 2025 to £16.57 billion this year.

Why it matters: Openreach has been the group’s anchor throughout the year, with 5% EBITDA growth that offset the 2% decline in Consumer and 5% decline in Business. Full-year Openreach broadband line losses came in at 825,000, an improvement compared with the 850,000 expected, thanks to better commercial performance in the fourth quarter.

• Looking ahead, management expects line losses to narrow further in 2027 to around 800,000. While management was cautious not to call a trough, the trajectory is improving as BT accelerates fiber rollout in areas where alternative networks have a stronger presence.

The bottom line: We raise our fair value estimate from GBX 200 to GBX 230 as we raise our medium- and long-term EBITDA margin forecast for Openreach 100 basis points, from 68% to 69%, to incorporate lower line losses, cost controls, and slightly higher operating leverage.

• Cost controls remain paramount to deliver on the £8.2 billion-£8.3 billion EBITDA 2027 guidance. We don’t have too many reservations on this front, as since fiscal 2024, BT has cumulatively reduced operating costs by 13%. We expect more of this in 2027 and in the next three years.
• Openreach broadband line losses trajectory and take-up fiber rate on fiber-to-the-premises connections are key variables to watch and what could provide additional upside/downside to our valuation. Our fair value estimate implies a 5.6 times forward enterprise value/EBITDAaL.