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BT Results Re-Iterated Focus On Equity; Credit Indifferent In Absence Of Policy Change

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  • BT equity +12% since reporting compared to SXKP +3% over the same period though the EUR spread reaction has been largely muted.
  • While the improved guidance for CapEx (GBP <4.8bn by FY26 from GBP 5-5.1bn by FY26) and nFCF (3bn by end-decade from GBP 2.8bn by end-decade while also adding in guidance of GBP 2bn for FY27) and the commentary around having passed peak CapEx are encouraging, credit will see little benefit with no departure from dividend increases in sight and high pension contributions until at least the next valuation in 2026. For reference, the FY24 nFCF figure of GBP 1.3bn does not consider the GBP 0.8bn in pension deficit contributions while dividends paid were another GBP 0.8bn.
  • On the operational front, the guided growth in FY25 revenue (0-1%) and EBITDA (~1.25%) is weak and slightly behind consensus as the Business segment remains weak while Openreach line losses are expected to continue to increase in FY25. Consumer was healthy albeit with slowing revenue where the upcoming shift from CPI pricing could increase topline pressure.
  • Ultimately, we feel that with the current capital policy and performance outlook, BT credit has little scope to outperform and expect it to continue to trade wider than peers like VOD and Telefonica who at the very least are more actively pursuing strategic changes that benefit credit investors. We think the focus at BT will remain on equity and feel the new CEO’s comments that she loves squeezing equity shorts underscores this.
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  • BT equity +12% since reporting compared to SXKP +3% over the same period though the EUR spread reaction has been largely muted.
  • While the improved guidance for CapEx (GBP <4.8bn by FY26 from GBP 5-5.1bn by FY26) and nFCF (3bn by end-decade from GBP 2.8bn by end-decade while also adding in guidance of GBP 2bn for FY27) and the commentary around having passed peak CapEx are encouraging, credit will see little benefit with no departure from dividend increases in sight and high pension contributions until at least the next valuation in 2026. For reference, the FY24 nFCF figure of GBP 1.3bn does not consider the GBP 0.8bn in pension deficit contributions while dividends paid were another GBP 0.8bn.
  • On the operational front, the guided growth in FY25 revenue (0-1%) and EBITDA (~1.25%) is weak and slightly behind consensus as the Business segment remains weak while Openreach line losses are expected to continue to increase in FY25. Consumer was healthy albeit with slowing revenue where the upcoming shift from CPI pricing could increase topline pressure.
  • Ultimately, we feel that with the current capital policy and performance outlook, BT credit has little scope to outperform and expect it to continue to trade wider than peers like VOD and Telefonica who at the very least are more actively pursuing strategic changes that benefit credit investors. We think the focus at BT will remain on equity and feel the new CEO’s comments that she loves squeezing equity shorts underscores this.