BT’s (LSE: BT.A) share price continues to reflect the old story of a slow, utility-like operator. This is despite the business now being deep into a transition that is reshaping its fundamentals.
Peak capex appears to be behind it, and the benefits of its fibre-first strategy are becoming more evident. This means BT is shifting from an investment-heavy phase into one with stronger earnings visibility and improving cash generation.
That gap between improving fundamentals and stagnant valuation leaves BT looking a bargain to me at this stage of its transition.
So, how high can the shares go?
Strong earnings growth ahead
The key driver for any firm’s share price over the long run is sustained growth in earnings (‘profits’). A risk for BT is the intense competition in the telecoms sector that may squeeze its margins. However, consensus analysts’ forecasts are that its earnings will grow by 15% a year to end-2028 at minimum.
This looks conservative to me, given its recent run of results. The full-year 2025 numbers showed profit after tax soared 23% year on year to £1.054bn. This highlights how BT’s improving cost base and rising fibre economics are now feeding through more visibly to the bottom line.
Normalised free cash flow jumped 25% to £1.598bn, which is a major driver of long‑term value in its own right. This was driven by higher EBITDA and a materially lower working‑capital outflow.
Meanwhile, Openreach — BT’s fast-expanding full‑fibre network — delivered 5% EBITDA growth to £4.029bn. This reflected rising Fibre to the Premises penetration and strong cost control.
Indeed, BT’s ongoing cost-cutting and simplification programme will be another important earnings driver ahead. The firm has already delivered £3bn in cost savings — a full year ahead of plan. And it is now targeting a further £3bn of savings by 2029. This will boost EBITDA even in periods when revenue has dipped.
Together, these shifts underline a business whose fundamentals are improving in line with its transition plan.
So what are the shares really worth?
In my experience as a former investment bank trader, discounted cash flow (DCF) analysis is the optimal way to ascertain a share’s true worth.
It estimates a company’s ‘fair value’ by projecting its future cash flows and then ‘discounting’ them back to today.
Some analysts’ DCF modelling is more bearish than mine, depending on the inputs used. However, based on my DCF assumptions — including an 8.6% discount rate — BT is 51% undervalued at its current £2.06 price.
Therefore, its fair value could secretly be close to £4.20 a share — more than double its price today.
And because asset prices typically gravitate towards their fair value in the long run, it suggests a potentially terrific buying opportunity to consider if the DCF assumptions prove accurate.
My investment view
The old market narrative for BT simply no longer fits the new numbers, in my view.
With the business now moving into a more profitable, cash-generative phase, my valuation work suggests the shares sit well below their intrinsic worth.
On that basis, I will add to my position very soon. And I think BT merits far more attention from value-minded investors than it is currently getting.
