Outlook for BT shares in 2023

Apart from a few rare bright spots, the past seven years has been torture for BT shareholders. Will it be more of the same over the next 12 months or a year to celebrate? Here’s what the experts think.

A rollercoaster year for BT Group (LSE:BT.A) investors is ending with shares almost a third lower than where they started and with one leading City analyst far from hopeful of a rebound in 2023.

UBS’s telecoms expert Polo Tang today lowered his price target from 174p to 130p, a level that compares with November’s low for the year of 113.8p and this afternoon’s 118p.

Tang expects another mixed year due to increased competition facing BT’s Openreach arm and because of the limited scope for above-inflation price rises in the consumer division.

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His upside case is 227p but Tang’s most pessimistic scenario points to just 40p if wages and energy bills come in much higher than expected, and Openreach customers Sky and TalkTalk transfer a big slice of their business to a different provider.

Tang said: “While we are cautious on fundamentals, concerns may be largely priced in at current levels. We remain neutral but cut our price target to 130p from 174p to reflect a de-rating of the sector/more conservative longer-term assumptions.”

The shares recently endured their worst day since the pandemic after BT raised its 2025 cost savings target by £500 million to £3 billion in an effort to combat mounting inflation pressures.

The slump highlighted a year of two halves for the widely held FTSE 100 stock, which currently trades with a forward dividend yield of 6.4%.

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The shares were initially buoyed by speculation around the 18% stake built by French billionaire Patrick Drahi as well as the prospect of April’s 9.3% hike in consumer prices.

However, rising energy and wage costs limited earnings upgrades in May’s annual results and economic challenges have put strain on revenues in the Enterprise and Global Services division. The government's focus on national security for specific sectors has also made it difficult for Drahi’s Altice business to increase its stake in BT further.

Openreach has progressed quickly with its full-fibre rollout during the year, passing nine million homes out of a target of 25 million by 2026, but rising broadband infrastructure competition has put pressure on its market share and revenues.

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A rapidly growing number of alt-nets are building their own networks and Liberty Global (NASDAQ:LBTYK), Telefonica SA (XMAD:TEF) and InfraVia Capital recently formed a joint venture to roll out fibre to five million homes not currently served by Virgin Media O2’s network by 2026.

On the consumer side, there are questions over whether BT can pass on inflation-plus 3.9% bill hikes without a big jump in its churn rate. A price announcement is expected in January, with any changes likely to be closely scrutinised by regulator Ofcom.

Other developments have included September’s joint venture deal with Warner Bros combining the assets of BT Sport and Eurosport UK.

The divestment of BT Sport leads to a £600 million drop in revenues and is neutral on underlying earnings, but Tang thinks that a potential £100 million-£200 million drag on free cash flow is not fully reflected in the City consensus.