BT Group: Cost Cutting Helps Maintain EBITDA Despite Revenue Pressures

There were lights and shadows in BT Group's half-year results. On the one hand, management reduced meaningfully its revenue outlook for fiscal 2025, from guidance of 0% to 1% growth previously to a 1% to 2% decline. Investors didn’t like this news, with shares down 5% at the time of writing to GBX 135. On the other hand, BT maintained its GBP 8.2 billion EBITDA guidance and its GBP 1.5 billion of normalized free cash flow guidance. BT’s recent cost-cutting efforts have achieved a net reduction of operating expenses of 2.6% in the past 12 months, including a reduction in its number of employees by 10,000, way above other telecommunication peers. Management also raised its dividend to 2.40 pence per share from 2.31 one year ago, which aligns with our thesis that BT can do moderate dividend increases as long as it keeps focused on reducing costs and capital expenditures keep gradually coming down. We trim our fair value estimate to GBX 190 from GBX 200 after adjusting our near- and medium-term revenue estimates but still see BT shares as undervalued. Overall, we like management’s long-term cost-cutting plan, a key factor for medium-term EBITDA growth.