BT Group: Strategic Divestiture and Fiber Dominance Unlock Undervalued Telecom Gem

In an era where telecom giants are redefining their core missions, BT Group (LON:BT.A) stands out as a compelling turnaround story. By shedding non-core assets, accelerating its fiber broadband dominance, and unlocking free cash flow, BT is positioning itself for a post-2026 valuation re-rating. The divestiture of its 50% stake in TNT Sports, aggressive Openreach fiber rollout, and resilient dividend policy combine to create a rare opportunity in a sector ripe for consolidation.

The TNT Sports Divestiture: Cutting Losses to Fuel Growth

BT’s decision to exit its unprofitable joint venture with Warner Bros Discovery (WBD) marks a pivotal shift toward operational focus. The TNT Sports stake, which reported a £187.5 million pre-tax loss in FY24, has been a drag on earnings and capital allocation. The sale—expected to close by March 2026—will eliminate this financial burden, freeing up capital for high-return initiatives.

While the stake is valued at £750 million, the strategic upside is far greater. BT’s core telecom business, which commands 40% of UK broadband and 25% of mobile market share, will now benefit from redirected resources. CEO Alison Kirkby’s “asset-light” strategy prioritizes profitability over diversification, aligning BT with the £2.0 billion free cash flow target by FY27.

Openreach Fiber Dominance: The Engine of Future Growth

BT’s Openreach division is on track to pass 25 million premises with full-fiber broadband (FTTP) by December 2026, exceeding its original 20 million target. This acceleration, fueled by record build rates of 2.1 million premises in H1 FY25, underscores BT’s execution excellence. The 35% take-up rate and 446,000 net adds in Q2 FY24 highlight strong demand for high-speed connectivity, a trend set to intensify as the UK transitions to gigabit networks.

By 2030, BT aims to cover 30 million premises, contingent on favorable regulatory outcomes. This ambition is backed by cost efficiencies: £433 million in savings from its £3 billion cost-transformation program have already bolstered margins. With 80% of broadband losses occurring in areas lacking FTTP coverage, the rollout directly addresses customer churn while positioning BT as the UK’s indispensable digital infrastructure provider.

Free Cash Flow and Dividend Resilience: A Foundation for Shareholder Returns

BT’s financial discipline is evident in its FY25 free cash flow guidance of £1.5 billion—a 57% year-on-year increase—and its progressive dividend policy. The interim dividend rose 3.9% to 2.40 pence per share, with the full-year payout expected to grow further. Analysts project a £2.34 12-month price target, implying a 6.69% premium to its current price of £2.19.

Crucially, BT’s free cash flow trajectory is underpinned by peak capex having already been passed, reducing reinvestment needs. With £1 billion in capex savings post-FTTP peak, BT can amplify shareholder returns or invest in high-growth areas like 5G and cloud services. The dividend’s full coverage by free cash flow signals financial stability, even as the pension deficit—now £4.3 billion—is managed through contributions and asset returns.

Why Now Is the Inflection Point

The March 2026 deadline for the TNT Sports sale creates urgency, as WBD’s integration of the stake into its HBO Max streaming platform could unlock synergies ahead of its UK launch in 2026. For BT, this accelerates the removal of operational complexity, sharpening its focus on its £5.2 billion core telecom business (despite a 3% revenue dip due to non-UK headwinds).

Analyst consensus is overwhelmingly bullish: 12 of 17 analysts rate BT a “buy”, with a 1-year average target of £2.34. The stock trades at a 12.3% discount to its 5-year average EV/EBITDA multiple, offering a margin of safety.

Risks and Considerations

• Regulatory hurdles: Ofcom’s 2026 Telecoms Access Review (TAR) must align with BT’s fiber ambitions.
• Pension obligations: The deficit, though declining, remains a long-term concern.
• Global operations: Weakness in non-UK markets could pressure margins, though BT’s strategy emphasizes trimming these divisions.

Final Analysis: A Compelling Buy at Current Levels

BT Group is a classic value play: a £20 billion market cap giant with £1.5 billion in annual free cash flow, a dominant UK telecom position, and a catalyst-rich path to valuation re-rating. The TNT Sports exit, fiber dominance, and dividend resilience form a trifecta of growth.

Investors should act now to capitalize on the £0.15 undervaluation gap relative to FY27 targets. With shares trading at £2.19, the £2.34 price target offers a 7% upside, while WBD’s HBO Max integration and FTTP expansion milestones could push the stock higher. This is a rare opportunity to own a telecom leader at a post-divestiture discount—before the market catches up.

Action Item: Buy BT Group shares at current levels. The combination of strategic clarity, financial discipline, and secular tailwinds positions BT to outperform in 2026 and beyond.