J.P. Morgan adds BT Group to its Analyst Focus List

Investing.com -- J.P. Morgan has added BT Group (LON:BT) to its Analyst Focus List, citing improving earnings, potential industry consolidation, and increasing shareholder returns as key drivers.

In a note dated Wednesday, J.P. Morgan analysts maintained an “overweight” rating on BT and set a price target of 286p by March 2027, representing 63% upside from the current share price of 176p. 

The move follows a roadshow in London where analysts said they gained confidence in BT’s financial guidance for the year ending March 2026, describing it as “sensibly prudent” with upside potential.

The brokerage flags several catalysts that could support a recovery in BT’s valuation. Among them is the financial distress of many of BT’s retail and wholesale competitors. 

J.P. Morgan noted leverage levels at TalkTalk and Virgin Media O2 at 12.8x and 5.6x, respectively, compared to BT’s 2.4x. 

These pressures could lead to a wave of industry consolidation, with media reports suggesting BT is exploring a takeover of TalkTalk.

BT’s free cash flow has been constrained at around £1.5 billion annually due to high capital expenditures tied to its fibre rollout. 

J.P. Morgan projects a recovery, with normalized equity free cash flow expected to reach £2 billion by March 2027 and potentially £3.5 billion by decade’s end. A bull-case scenario estimates £4 billion. 

Analysts estimate BT could return up to £10 billion to shareholders over the next six years, roughly 60% of its market capitalization.

Operational changes are also supporting the firm’s outlook. BT has increased its fibre build target to 5 million premises by March 2026 and has secured more than 20% in unit cost reductions due to excess contractor capacity. The company reiterated plans to cut annual capital expenditures by £1 billion by March 2028. 

Additional cost savings are expected from IT simplification initiatives, some of which are being developed with shareholder Sunil Mittal.

BT’s consumer business has returned to broadband subscriber growth, helped by the relaunch of the Plusnet brand. 

About half of BT’s households currently subscribe to only one service, leaving room for cross-selling.

On the enterprise side, BT aims to cut losses from its international segment and is seeking a partner to support a turnaround.

Line losses at Openreach, BT’s infrastructure arm, are concentrated in areas where fibre has yet to be deployed. 

Management expects these losses to peak in the current fiscal year as fibre coverage expands.

J.P. Morgan analysts argue that BT is positioned for a return to earnings growth supported by cost discipline, stabilizing revenues, and normalized investment levels. 

They maintain that the company’s long-term outlook offers a double-digit annual growth trajectory in earnings and free cash flow.