BT and Verizon have agreed to combine their international operations into a 50:50 joint venture. The new entity will have a combined annual revenue of around $4bn and serve around 3,000 multinational organisations.
BT will receive a $0.6bn payment from Verizon as part of the transaction.
The transaction is expected to complete in 2027, subject to regulatory approvals.
As a result of the transaction, BT has trimmed its full-year revenue guidance by around £2bn to £17.1-17.6bn. Underlying cash profit (EBITDA) is now expected to be £8.1-8.2bn, slightly lower than previously guided.
The shares rose 1.4% in early trading.
Our view
BT’s spin-off of its international business marks a key step in streamlining the business and refocusing its efforts on domestic operations. The new international business will be half-owned by both BT and Verizon and is expected to benefit from greater scale and operational efficiencies as the two companies combine their international divisions.
BT’s wider strategy involves significantly modernising and simplifying operations and product lines. That includes bringing the BT brand back into parts of the consumer offering, while continuing to move customers onto the new 5G and fibre broadband networks, which have lower running costs than legacy infrastructure. Fewer repairs, better customer journeys and network efficiencies are also helping to support profits.
Cost cuts remain a long-term focus, with management now targeting a leaner workforce by the end of the decade and raising the overall transformation savings plan. There should also be a further benefit from lower investment as the heaviest phase of the fibre build passes. That’s good news for future cash flows, with BT reiterating its target for free cash flow to rise to around £2bn in 2027 and around £3bn by the end of the decade. That should help support the 4.4% prospective dividend yield as well as ongoing efforts to strengthen the balance sheet. There are no guarantees.
The asset we’re most excited about is Openreach, which is responsible for maintaining and building the new fibre networks. Full fibre now reaches 23mn premises, and BT remains on track to reach 25mn by the end of 2026.
This technical-heavy business is unique and higher margin. New fibre connections are growing nicely, and line losses were slightly better than BT had guided for. But it’s too early to declare victory. Competition remains fierce, and legacy broadband lines still make up a large part of the base, so Openreach needs to keep proving that better fibre take-up can offset pressure from older services.
The Business division has secured some encouraging customer wins, but it remains a tougher area to fix. Structural changes, rising costs and a competitive market continue to weigh, and there are some near-term headwinds to work through before efficiencies help in the second half.
BT’s future relies heavily on getting through this major buildout phase and turning investment into sustainable growth, not just better cash flow as spending falls. Progress looks good, and the updated dividend policy is a helpful signal.
All in, we think BT is one of the better-placed names in the sector. But the balance sheet is still stretched, earnings growth is expected to be hard to find for the next few years, and we think upside could be limited.
BT key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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