BT Price Target Raised, Analyst Releases Bearish Note on Shares (LON:BT-A)

BT Group shares (LON:BT.A) are down 1.46% today, with the price dipping below the 210p level as a mixed piece of analyst news creates a few questions in the market.

The share price has seen a bullish wave this year, up 42% YTD, yet some analysts see things quite differently. Despite raising their price target in an analyst note, Citi remain firmly bearish, maintaining a ‘Sell' rating on the shares.

While Citi raised its price target on BT Group to 140p from 130p, this adjustment does little to negate the firm's fundamental concerns about the company's long-term prospects, particularly regarding the Openreach division. The higher revised target continues to reflect a perceived downside of 33% from here.

Citi's apprehension stems from anticipated revenue declines within Openreach, BT's infrastructure arm. The firm projects a downturn in 2024/25, expecting further deterioration in subsequent years. These projections challenge BT's ambitious targets for normalized free cash flow, casting doubt on the company's ability to achieve its stated goal of £3 billion by the end of the decade. Citi analysts estimate a lower figure of £2.3 billion for 2029/30.

Deutsche Bank also weighed in with a ‘Sell' recommendation, setting a price target of 140p. The bank highlighted persistent pressures in BT's retail segment, offsetting some positive performance within Openreach, where broadband losses were less severe than initially feared. Despite this, Deutsche Bank remained steadfast in its negative outlook, anticipating a reduction of approximately 900,000 connections to competitors over the course of the year.

On the other hand, the month of August also saw an upside revision from Morgan Stanley, raising their price target to 260p from 240p with an Overweight rating. There is clearly a split on the street when it comes to BT.

Looking fundamentally, BT's full-year earnings report revealed a modest 1% increase in core earnings for the fiscal year ending March 31, 2025, reaching £8.21 billion, slightly below analyst expectations of £8.23 billion. This growth occurred despite a 2% decline in overall revenue, supported by robust demand for fibre connections and operational efficiencies. Openreach stood out as the sole segment exhibiting growth in both revenue and earnings, fuelled by its ongoing fibre rollout across the UK. BT's fibre network now spans 18 million premises, with over 6.5 million connections.

CEO Allison Kirkby announced an ambitious 20% increase in the fibre build target, aiming to connect an additional 5 million UK premises in FY26, reaffirming the goal of reaching 25 million premises by the end of 2026. The company reported a 25% year-over-year increase in free cash flow to £1.60 billion and reiterated its longer-term targets of £2 billion free cash flow by FY27 and £3 billion by 2030.

Kirkby also indicated that advancements in artificial intelligence (AI) could potentially lead to deeper job cuts at BT than initially projected. The company had previously announced plans to eliminate over 40,000 jobs and cut £3 billion in costs by 2030. AI-driven efficiencies might necessitate further reductions to maintain competitiveness. The possibility of spinning off Openreach, once its full-fibre rollout to 25 million homes is completed, has also been floated. Openreach is currently valued at £30 billion, exceeding BT’s market value of £18.5 billion.

Today's pullback in BT continues a pause in the rally, with the 220p proving to offer up quite the resistance in recent tests. Citi's persistently bearish outlook underscores the complex and multifaceted nature of BT Group's current situation. While strategic initiatives and operational efficiencies provide some support, concerns surrounding Openreach's future performance and the potential impact of AI on the workforce continue to weigh on sentiment as far as the bears are concerned. Bulls on the other hand will be eyeing up a return to form, with the average price target of 209p in line with current price action. Quite the battle line.