BT Group’s Full-Fibre Surge Positions It for a Cash Flow Inflection Point – Buy Now Before the Payoff

BT Group (LON: BT.A) is on the cusp of a transformative shift. Its accelerated full-fibre rollout, paired with razor-sharp cost discipline, is setting the stage for a near-term cash flow explosion. With a raised FTTP (fibre-to-the-premises) target of 25 million UK premises by December 2026—up from 20 million just two years ago—and a cost savings program yielding £913 million in annualized efficiencies, BT is primed to deliver on its mid-term free cash flow (FCF) guidance of £3.0 billion by 2030. Investors who act now could capitalize on a stock trading at a 40% discount to its fair value, with a critical FCF inflection point—£2.0 billion by FY27—fast approaching.

The Full-Fibre Acceleration: A Catalyst for Growth

BT’s revised FTTP target of 25 million premises by 2026 represents a 25% increase from its prior ambition, driven by regulatory clarity from Ofcom’s WFTMR reforms, favorable tax incentives, and a proven build rate of 4.2 million premises annually. As of Q3 FY25 (ending December 2024), Openreach had already passed 17 million premises, covering over half the UK. The build rate has averaged 81,000 premises per week, with cost efficiencies enabling this expansion without additional capital expenditure. Crucially, the take-up rate—the percentage of premises passed that subscribe to broadband—has surged to 35%, translating to 6.0 million connected premises and 472,000 net additions in Q3 alone.

This rollout is not just about infrastructure. It’s a strategic move to dominate the UK’s digital future. With 30% of UK households still on outdated copper networks, BT’s FTTP is the only scalable solution for gigabit speeds. The company’s rural-focused Project Gigabit contracts, funded by £288 million in state aid, are tackling hard-to-reach areas, ensuring coverage extends beyond urban centers.

Cost Discipline: Fueling the FCF Machine

BT’s operational transformation is underpinning its financial turnaround. Over the past three years, the company has slashed energy usage by 3%, reduced labor costs by 3% (to 117,000 employees), and cut repair volumes by 11%—all while accelerating FTTP deployment. These efforts have generated £913 million in annualized cost savings, which are now flowing directly to the bottom line.

This efficiency drive is already paying off. In Q3 FY25, adjusted EBITDA rose 4% to £2.1 billion, despite a 3% dip in revenue due to non-UK market headwinds. Meanwhile, the Net Promoter Score (NPS) jumped to 29.6, signaling customer satisfaction as networks improve. With costs under control and FTTP adoption rates climbing, BT is on track to hit its £2.0 billion FCF target by FY27, a critical milestone that will catalyze valuation re-rating.

Why BT Is Undervalued—and Poised to Soar

At current levels, BT trades at just 8x forward EV/EBITDA, a steep discount to its 12x–15x historical average and peers like Vodafone Group (LON: VOD). This disconnect is unfounded.

• Dominant Network Position: BT’s FTTP network serves as a moat, with Openreach controlling 90% of the UK’s core digital infrastructure.
• Sustainable FCF Growth: The £3.0 billion FCF target by 2030 is achievable, given the £15 billion total investment already secured and cost efficiencies that continue to compound.
• Near-Term Catalysts: The FY27 £2.0 billion FCF milestone will likely trigger multiple upgrades from analysts, while the 5G Emergency Services Network contract (worth £1.3 billion) provides recurring revenue.

Risks and Why They’re Manageable

Skeptics point to regulatory uncertainty and rural rollout challenges. While Ofcom’s upcoming Telecoms Access Review (2026) could impact pricing, BT’s partnership model—with joint ventures for high-cost areas—mitigates this risk. Logistical hurdles in rural regions exist, but the Project Gigabit subsidies and Openreach’s track record of 4 million annual builds suggest these are surmountable.

Final Call: Buy BT Before the FCF Surge

BT Group is a buy at current prices. The stock’s valuation ignores the £2.0 billion FCF inflection point and the long-term tailwinds of FTTP adoption. With £913 million in annualized cost savings and a 25 million-premise target now within reach, BT is a rare value play in a sector known for high multiples. Investors should act now to secure exposure to this UK digital backbone before the market catches on.

Action: Buy BT shares ahead of the FY27 results, targeting a 50% upside to fair value by end-2025.