BT shares hammered by savage downgrade

A City firm’s sudden loss of confidence in BT Group (LSE:BT.A) shares today drew a strong response from retail investors during a session of heavy dealings in the FTSE 100-listed telco.

Citi’s double downgrade from Buy to Sell came as it questioned the company’s ambition for this year’s £1.5 billion of cash flow to grow to £3 billion by the end of the decade.

The bank cut its price target on the shares from 200p to 112p, which compares with today’s low point of 141.7p after an initial 6% reverse. BT later settled at 144.6p, still sharply higher than May’s 105p but down on December’s recent peak of 160p.

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Plenty of retail investors viewed today’s developments as an opportunity to take new positions after BT ranked as the fifth-most traded stock on the interactive investor platform.

More than 29 million shares were traded overall across the London market by 2.30pm, with volumes the highest in FTSE 100 index behind only Lloyds Banking Group (LSE:LLOY). BT’s 30-day volume average is 17.5 million.

BT's aims under chief executive Allison Kirkby, the former head of Swedish telecoms company Telia, include simplifying its products and services and completing the build and roll-out of its full-fibre broadband and 5G networks.

In recent third-quarter results, Kirkby highlighted further progress on strategic priorities after the consumer division returned to service revenue growth and the full-fibre roll-out by network infrastructure arm Openreach continued to set a fast pace.

Openreach passed more than one million premises for the fourth consecutive quarter and connected a new record of nearly half a million customers.

However, Openreach’s total broadband lines fell by 208,000 due to moderately higher competitor losses in a weaker overall broadband and new homes market. More than 80% of its line losses occur where BT has not built fibre to the premises.

While Openreach revenues were 0.8% higher in the quarter, the fading benefit of CPI-linked price rises and the advance of altnets such as CityFibre have fuelled City concerns.

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In today’s note, Citi said it expects Openreach revenues to decline in 2025-26 and remain under pressure for the rest of the decade. It sees BT coming up short of its £3 billion target for normalised cash flow in 2029-30.

The bank’s new Sell stance was also driven by concerns around the sustainability of BT Consumer's long-term pricing dynamic.

Today’s note echoes the long-held view of UBS, which has a 120p target price.

It said after last month’s update: “We think revenue pressures will build over the coming quarters amid lower CPI-linked price rises and rising broadband infrastructure competition. Specifically, BT has material exposure to two large clients (Sky/TalkTalk) that are shifting business away from BT/Openreach.”

In contrast, Bank of America recently rolled forward its price target to 208p and said the company is one to watch as a play on its anticipated decline in capital expenditure.

A £1 billion reduction as the full fibre roll-out reaches maturity means the bank believes there’s the potential to re-rate cash flow and dividend.

It believes that BT’s Consumer operations are competing well and that weaker growth in business-to-business can be offset by a potential sale of the exposed operations.

Head of editorial Lee Wild owns BT shares