A stable utility

First we have BT Group (LSE:BT.A). The stock is up 17% in the past three months, and 30% over a broader one-year time horizon. The Q3 update from February suggested broadband competition is easing, with customer losses coming in lower than feared. At the same time, its full-fibre rollout continued at pace, now passing over 21m premises. Investors were impressed by the strong take-up growth, and this could keep helping the stock outperform later this year.

BT’s cash flow has also been improving. In volatile markets (especially amid geopolitical tensions), that kind of predictable, infrastructure-backed cash generation becomes very attractive. Telecoms aren’t flashy, but they’re essential. After all, people don’t cancel broadband in a crisis!

The stock is holding up very well, and I believe it could continue to do so as people will see it as a defensive play. In uncertain conditions, investors tend to allocate funds to these companies with stable demand and dividend potential. Its yield of 3.79% isn’t the highest in the index, but is above the FTSE 100 average.

One risk is regulatory scrutiny. This is always something investors are concerned about as they have the power to materially impact any growth plans by putting roadblocks in the way.

Engineering profits

The second company doing well is Weir Group (LSE:WEIR). It’s up 47% in the last year and has been rallying so far in 2026 as well.

Interestingly, the share price dropped in March following full-year results. This came due to a guidance tweak lower for this year and higher spending on a new company-wide IT system. Even though these could be seen as risks going forward, there were plenty of positives to take away from them. For example, revenue was up 2%, with adjusted profit before tax up 4%.

We also need to factor in the indirect benefits from the ongoing commodity boom. Remember, Weir is a global engineering company focused on providing high-performance technology and services to the mining industry. I believe key themes such as the electrification push and AI build-out will continue to keep commodity prices high. This should help smooth out any market volatility in the share price as people are aware of the long-term demand trend.

Even though some were disappointed by the recent guidance, the company is still expecting further growth and margin expansion in 2026. This is supported by various factors, including operational improvements and its push into higher-margin software offerings. This increasingly diversified set of revenue streams should further make it a reliable company that people would do well to investigate further.

Overall, I think both stocks could be considered for portfolios aiming to manage volatility as we face uncertain times ahead.

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Take BT Group (LSE:BT.A) and Diageo (LSE:DGE). City analysts think these FTSE-listed stocks will rise by 50% or more over the next 12 months. So what are the chances of them taking off?

BT Group

Can BT’s share price surge 53% over the next year? That’s the view of one broker, who’s attached a 330p price target to the company. They’re expecting widescale restructuring, which includes cost-cutting and a move away from legacy services, to keep delivering strong returns.

But I’m not so sure. And neither are the vast majority of analysts rating BT shares. Those 14 currently rating the company have attached an average share price of 208.7p, down 3% from today’s levels.

I’m not surprised by their bearish position. Amid fierce competition and weak consumer spending BT’s still struggling to get sales firing. And with the Iran War raising inflationary pressures and hitting UK economic growth, its task is becoming increasingly difficult. Latest financials showed revenues down 4% in the three months to December.

Rising inflation creates another significant issue for the FTSE 100 stock. With the Bank of England now expected to hike interest rates — the market is pricing in two raises in 2026 — borrowing costs will increase. This is the same for all businesses, but the problem for BT is especially acute given the size of its debt pile.

At the end of 2025, its net debts were £20.9bn and rising.

I don’t think any of these issues are properly reflected in BT’s high valuation. The forward price-to-earnings (P/E) ratio of 14.4 times today sails above the 10-year average of 8.9.

My view is this may at least limit further price gains. If the conflict in the Middle East drags on, it could even cause a sharp drop in BT’s share price.

Diageo

Are things looking better at Diageo? After all, the company faces the same sales pressures as BT, and conditions could worsen if consumers tighten their belts still further. That’s not all — like other drinks manufacturers, volumes are under threat as people pursue healthier lifestyles and reduce alcohol intake.

Yet City analysts are confident the Guinness manufacturer’s shares can rebound from recent heavy weakness. The average share price target among 21 City analysts is £19.47, up 35% from today’s levels.

One forecaster even thinks Diageo’s share price can rise 67%, to £24.03.

While there are challenges, I’m also optimistic that Diageo can rebound as new CEO Dave Lewis’s recovery strategy begins. Steps like moving away from purely premium drinks, selling underperforming labels and stripping out costs could kickstart investor confidence and push the share price higher.

Diageo’s shares are also cheap enough to support a price rally. The forward P/E ratio of 12.6 times is miles below the 10-year average of 21-22. I’d suggest investors consider avoiding BT and take a close look at Diageo instead.

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So where is it heading from here? Could it slump again as it did in August last year — or has it rediscovered its 2024 momentum for good?

A volatile income play

While BT still offers some income appeal, it’s no longer the sleepy, low-drama dividend stock that it once was. Lately, the shares have been much more volatile than a classic passive income holding should be. Subsequently, the income appeal becomes a little less comfortable for long-term investors.

The recent ride has been a bit of a roller coaster, unsettling income investors seeking steady returns. Nobody is looking for a stock that makes sharp, unpredictable moves on sentiment and headlines. Dividends aside, a volatile share price leaves investors constantly worried about capital losses.

So is BT still an income pick?

A difficult period

Before Covid, BT had a decent reputation as a dividend payer. It delivered eight years of uninterrupted dividend growth between 2009 and 2017, and over the longer run the yield has often sat in a 4% to 6% range.

That kind of yield is enough to catch the eye of income seekers, especially when cash savings rates are lower. But it also paused dividends during the pandemic, so its track record is no longer perfect.

On top of this, it’s been dealing with the challenge of a national fibre rollout — a costly operation that’s ramped up debt.

Fair to say, it hasn’t exactly been an easy period.

Management shakeup

These combined challenges have partly contributed to a leadership reset, with CEO Bas Burger stepping down after 18 years.

Allison Kirkby has taken charge, with Katie Milligan stepping in as CEO of broadband subsidiary Openreach.

Naturally, all this in the middle of a critical rollout isn’t ideal. So Ofcom has stepped in to set the rules for the final phase of the fibre build, including price caps and further regulation.

But is it enough to subdue the volitility?

Where BT stands now

The telecom giant’s latest half-year figures were decent rather than dazzling. Adjusted EBITDA was £4.1bn, flat year on year, while reported profit before tax fell 11% to £862m.

Net debt rose to £20.9bn from £19.8bn, mainly because of pension contributions and the dividend payment. But the company still expects full-year normalised free cash flow of around £1.5bn, allowing some breathing room — but not a lot.

Heavy debt, continuing capital spending and regulatory pressure all add risk in an already competitive sector. If the fibre investment doesn’t start converting into cash soon, it could be in trouble.

Valuation-wise, the shares look somewhat reasonable but not exactly cheap, so it’s already earning some credit for the turnaround.

My verdict

Established companies like BT often retain appeal purely due to their size and longevity, which is reason enough to consider the shares. But with the fibre rollout ongoing and new management still integrating, investors should brace for further volatility.

In the long run, this probably won’t be a big issue. Once things settle, I imagine steady dividend growth will be reinstated. But I’ve also spotted a few more stable income picks on the FTSE 100 lately…

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That is a gain of £21,940 on the share price, plus a further £3,165 in dividends, giving a total return of almost 126%.

But the valuation still looks unusually depressed given the operational progress coming through. So, how much can be made from this price-to-valuation gap going forward?

Mind the gap

Share prices rarely reflect the ‘fair value’ of the underlying business. Instead, they are a function of market supply and demand for a stock.

However, over time share prices tend to converge to their fair value and this can spell major profits for long-term investors.

Discounted cash flow analysis identifies the price at which any stock should trade. It does this by projecting future cash flows of the underlying business and ‘discounting’ them back to today.

Some analysts’ DCF modelling is more bearish than mine, depending on the variables used. However, based on my DCF assumptions — including an 8.7% discount rate — BT shares are 50% undervalued at their current £2.16 price.

That implies a fair value of around £4.32 — double where the stock trades today.

And because of the long-term relationship between a share’s price and fair value, this suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.

Dividend returns forecast to rise

BT’s current dividend yield is 4%, comfortably above the present FTSE 100 average of 3.1%.
However, analysts forecast this will rise to 4.2% this year and remain around that level over the medium term.

So, those considering a £20,000 investment would make £10,417 in dividends after 10 years and £50,353 after 30 years. This assumes the forecast 4.2% as an average, although yields can go down as well as up. It also factors in the dividends being reinvested back into the stock to harness the power of ‘dividend compounding’.

At the end of 30 years, the total value of the holding would be £70,353, and this would pay a yearly dividend income of £2,955.

How does the core business look?

A risk for BT is slower‑than‑expected migration to full‑fibre, which could limit the average revenue per user (ARPU). Another is any delay or failure in BT’s cost‑cutting and automation savings plans that could affect expected margin improvements.

That said, the consensus forecast of analysts is that the company’s earnings will grow a strong 15% a year to end-2028 at minimum. And it is this that ultimately powers any firm’s share price and dividend gains.

Its latest major results (H1 of fiscal year 2026) saw Openreach add 1.1m net fibre‑to‑the‑premises connections. Broadband ARPU rose 4% year on year to £16.7, illustrating the earnings uplift from full‑fibre take‑up and improved speed mix.

BT also delivered £247m of gross annualised cost savings, underlining how its transformation programme is directly improving margins.

My investment view

BT offers a rare combination of deep undervaluation, rising full‑fibre economics and a clear path to stronger cash flow, in my view.

The earnings engines are now clearly visible, the dividend is growing, and the transformation programme is delivering ahead of plan.

For those reasons, I will be buying more of the shares myself and think them worthy of other investors’ consideration too.

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But could things change on 21 May, when the telecoms group’s due to report its results for the year ended 31 March (FY26)? Let’s take a closer look.

What’s going on?

BT strikes me as a business that’s going nowhere. A review of its past and a look at its expected performance suggests that it’s in a bit of a rut.

For example, FY25 revenue fell 2.2% to £20.4bn compared to the previous year. Looking ahead, analysts are forecasting a drop and then little change — £19.7bn (FY26), £19.3bn (FY27), and £19.4bn (FY28).

It’s a similar story when it comes to EBITDA (earnings before interest, tax, depreciation, and amortisation), the group’s preferred measure of profitability. By FY28, it’s expected to be only £108m higher than it was in FY25. Adjusted earnings per share is forecast to be a meagre 2.1% more.

In some respects, this isn’t surprising. Up until its privatisation in 1984, BT was a state-owned monopoly responsible for the UK’s telephone network. Today, it has thousands more shareholders but it still owns all the wires, exchanges, and trunk lines that others have to pay to use.

Its stable earnings are typical of a utility company enjoying a natural monopoly over the infrastructure that it built. However, investors expect listed businesses to grow faster than BT’s done in recent years.

This lack of momentum probably explains why analysts’ consensus is that the group’s shares are currently (6 April) fairly valued.

A mountain of debt

Another issue is the group’s borrowings. At 30 September 2025, its net debt was £20.9bn, which is only £100m below its current market-cap. Again, this isn’t entirely unexpected. Telecoms infrastructure is expensive.

For many years, BT’s Openreach division – which contributes just under half of the group’s earnings — has been investing heavily in rolling out the UK’s full-fibre network. Currently available to around 25m homes, it expects to have reached 30m by the end of the decade.

But with the pace of this investment slowing, some analysts are expecting the group to have reached ‘peak CAPEX’ in FY26. If the group confirms this when it updates investors in May, this could give its share price a bit of a boost.

That’s because an easing of capital expenditure should provide more cash to pay down some of its borrowings. Indeed, analysts are expecting free cash flow of £2.4bn in FY28, compared to £1.5bn reported in FY26. Importantly, they’re forecasting a £1.9bn reduction in net debt. Interest costs should also fall.

My verdict

To me, BT feels like a company that should be doing much better. Prior to Vodafone’s merger of its UK operations with Three, BT had the country’s largest mobile network, both in terms of coverage and customer numbers. And it’s part-way through a huge £3bn cost-cutting programme intended to improve its bottom line. Its dividend’s pretty good too. The stock’s currently yielding an above-average 3.8%.

However, its lack of momentum makes me believe there are better opportunities to consider elsewhere.

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BT Group had a vast pension scheme, hefty £20bn net debt, and a habit of pursuing questionable strategies. The lurch into sports broadcasting never sat comfortably with me, draining resources and distracting from the core job. It’s now beaten a sharp retreat and rightly so. Telecoms is tough enough on its own, demanding constant investment in infrastructure, and a relentless battle against smaller, nimbler rivals.

FTSE 100 basket case?

A couple of years ago, I noticed BT shares looked stunningly cheap. The price-to-earnings ratio sat around six, and the yield nudged 7%. I was tempted but held back, worried its problems ran too deep. I felt it was cheap for a reason, and could get cheaper still. Instead, I missed a remarkable recovery under CEO Allison Kirkby*.

*Correction: The article previously stated the CEO of BT as Amanda Blanc instead of Allison Kirkby.

She’s presided over an impressive comeback. Full-year 2025 results showed reported pre-tax profits climbing 12% to £1.33bn. Investment in Openreach fibre infrastructure has peaked, and the benefits are starting to roll in. Blanc is targeting £2bn of normalised free cash flow by 2027, and £3bn by the end of the decade.

But it’s not all rosy and we can’t escape the fact that legacy issues remain. Q3 results on 5 February were patchy, with revenue down 4% to £5bn. Pre-tax profit slipped, but that was mostly due to a £214m loss from its TNT Sports joint venture with Warner Bros Discovery. Yes, Openreach added another 571,000 customers net, with total fibre connections hitting 8.2m. But the trick is hanging on to them. It’s bleeding customers at the rate of 200,000 a quarter.

I’m stunned by how the shares have held firm during today’s Iran turmoil. Over the last bumpy month, they’re up 2.2% and 18% over three months. I’m surprised at their resilience. The one-year gain stands near 30%, and over two years they’ve surged 97%. BT is clearly a very different beast today.

Telecoms firms are capital intensive, operate in competitive markets and face constant pricing pressure. Yet investors seem confident in BT’s ability to deliver steady returns, even in choppy conditions.

Income and valuation

The easy gains have probably gone. The shares no longer look like a bargain, with the P/E now around 11.5. That’s still reasonable, but it’s a step up from the rock-bottom levels seen before. As the shares climb, the trailing yield has slipped to 3.8%.

Net debt is still around the £20bn mark, roughly in line with its market cap, and the pension scheme issue hasn’t vanished. If the cost-of-living crisis returns with a vengeance, more customers could shop around for cheaper mobile and broadband deals.

Yet BT is a far steadier business than I ever imagined. The dramatic rebound phase is largely behind it, but it now looks like a credible long-term hold, and well worth considering today. That said, others may prefer shares that have been knocked harder by recent volatility and offer earlier-stage recovery potential.

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The FTSE 100 telecoms stock spent years battling intense competition while trying to streamline its sprawling structure. Its costly foray into sports broadcasting looked like an unnecessary distraction. Add in a huge pension scheme, towering net debt, and the billions it had to pour into rolling out the UK’s full-fibre network, and it looked like one to avoid. A massive rebuilding job was required, and it got it. Its recovery has accelerated under chief executive Allison Kirkby, appointed in February 2024.

FTSE 100 recovery hero

A couple of years ago, I finally started writing more positively about BT. In fact, I seriously considered adding the shares to my Self-Invested Personal Pension (SIPP). They looked incredibly cheap, trading on a price-to-earnings ratio of five or six, while yielding a bumper 7%, or so. Sadly, I didn’t buy it, still scarred by those years of muddle.

There’s a lot less muddle now. In May 2024, Kirkby said BT had reached an “inflection point”, as the costs of building Openreach had peaked and revenues start to flow. By 2027, full fibre will have been rolled out to more than 90% of UK properties.

I hadn’t checked the shares since the Iran crisis began, and wasn’t sure what to expect. They’re up 4.5% over the last month and 30% over one year. Investors who bought when I sadly didn’t will be very happy. The BT share price is up an impressive 102% over two years. That would have turned £15k into roughly £30,300. Reinvested dividends have added another £1,300, or so.

Dividends and growth

That’s a strong return, but also history. So what about today? Inevitably, BT shares are more expensive than they were, with a P/E of 11.6. It’s not excessive though. The trailing yield has fallen to 3.85%, hardly surprising after such a strong run for the share price.

Q3 results (5 February) were mixed. Revenue fell 4% to £5bn, while pre-tax profit dropped to £183m, mostlyl due to a £214m loss from the TNT Sports joint venture with Warner Bros Discovery. Cost-cutting offset some of the pressure and Openreach continued to grow strongly, with 571,000 net adds, up 21% year-on-year. Total fibre connections hit 8.2m.

Net debt still sits at a massive £20bn though, pretty much in line with its market-cap. Openreach also lost 210,000 broadband lines to rivals in the quarter. Total annual losses are expected to be around 850,000. Telecoms is a fiercely competitive market, and alt-net rivals are snapping at its heels.

If the cost-of-living crisis returns, more households may switch as they redouble efforts to save money. BT has successfully cut its energy costs lately, but an oil price shock could reverse that.

So is BT a defensive stock? That may be pushing it. But it does provide essential services that people rely on every day. I think it’s worth considering for long-term investors, but I wouldn’t expect a repeat of the last two years. Alternatively, investors might like to seek out FTSE 100 shares that have been battered by recent volatility, and get in at an early stage of their recovery.

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The question is, can BT shares keep delivering spectacular gains? One especially bullish forecaster expects them to hit 300p during the next year. That’s up 45% from current levels.

It’s important to note that this prediction is at odds with broader broker opinion. The average 12-month price target among 15 analysts is 203.1p. That’s slightly below current levels of 205p. So what are the chances of BT’s share price hitting that magic 300p marker or sticking at its current level?

Cash boost

To my mind, there are four possible catalysts for an increase over the next year. One is a substantial improvement in cash flows, as its ambitious streamlining drive continues and capital expenditure starts to fall.

The business has targeted £3bn in cost savings from measures like major job cuts and moving customers to more margin-friendly 5G and fibre broadband products. It’s achieved £1.2bn so far, indicating there’s more to come.

On the capex front, BT remains on course to connect 25m premises to its full-fibre broadband by the end of this year. This won’t be the end of its expansion strategy — it’s planning to have 30m properties hooked up “by the end of the decade.” But spending is tipped to fall sharply after 2026, and this could have several major positives.

More price catalysts

For one, it should help the company cut its enormous net debt pile. As of December, it had £20.8bn on its books. Anxiety over these debts has long troubled investors, so signs it’s getting to grips with this could give BT’s share price a huge extra boost.

A jump in cash flows could also result in further dividend hikes and share buybacks that could give its shares added traction. More cash will also help the business tackle its gigantic pension deficit and give it more capital to invest for growth.

The final thing BT may need to see its share price rise 45% is an improvement in the UK economy. Revenues are still falling (down 4% in Q4), but improving conditions could potentially drive sales higher.

So what’s the catch?

The trouble is that BT faces a number of challenges to achieve a revenues recovery. And that’s not just because of the poor growth outlook in Britain, one that’s becoming murkier as the Middle East war continues.

The telecoms giant also faces significant competitive pressures that are damaging both revenues and margins. Even if economic conditions improve, it could struggle to grow profits as rivals slash prices and expand their services.

It’s also worth remembering that BT shares don’t look cheap at current levels. The firm’s forward price-to-earnings (P/E) ratio is 11.6 times, above the long-term average of 8–9. Does this make it expensive given the risks it faces? I think so, and that could limit the scope for more price gains.

To my mind, much of the good news around BT and its cash flows is baked into today’s share price. I won’t buy the company for my portfolio, but it could be worth consideration for more adventurous investors.

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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.

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I can’t shake off memories of when BT looked like a sprawling empire that had lost its way. A tired legacy brand, patchy customer service, bulging debt and a massive corporate pension schemes hanging round its neck.

Like many troubled giants, it started doing erratic things. The expensive plunge into sports broadcasting rights was the clearest example, splashing billions to compete with Sky, only to retreat into a joint venture. Telecoms is a competitive, capital-intensive industry. Get strategy wrong and the bill is enormous. Yet since Allison Kirkby took over as chief executive two years ago, BT has shone.

FTSE 100 fight back

Kirkby has simplified the sprawl by cutting costs and shrinking the workforce as she battles to transform BT from a confused conglomerate to a lean, mean connectivity business. Non-core assets have been trimmed and capital allocation looks more disciplined.

I was ready to buy the stock a couple of years ago when it looked absurdly cheap, trading on a price-to-earnings (P/E) ratio of around six with a trailing dividend yield close to 7%. Then I got cold feet. It was still too messy for me.

Bad move. The shares have doubled since those lows, with dividends on top. The last 12 months have been more volatile but they’re still up about 35% in that time. A big chunk of that came in the last month, with the shares jumping a mighty 13.7%. That would have turned £15,000 into £17,055 in a month. More than £2,000 in short order.

What makes that rally more surprising is that third-quarter results (5 February) weren’t exactly stellar. Revenue slipped 4% year on year to £5bn, due to weaker service and handset sales, although disposals made the headline number look worse than it is. Reported pre-tax profit fell sharply, hit in part by losses from the sports joint venture.

This stock is a mixed bag

Yet there were bright spots. BT saw record demand for Openreach full-fibre, while cost-cutting continued at pace. Crucially, management reiterated full-year guidance and pointed to a step-up in free cash flow over the next few years. So where next?

Full-fibre expansion remains BT’s key growth engine. As more homes connect, revenues should with luck become steadier and more predictable. Artificial intelligence and automation could further reduce headcount, boosting margins. That’s the theory, anyway.

There are risks. Having put in the hard yards, Openreach risks losing customers to smaller, nimbler alt-net rivals. BT still has almost £20bn of debt, roughly equal to its market cap.

The trailing dividend yield has eased to around 3.9%, but if earnings forecasts are met it could edge back towards 4.5% over the next couple of years. With a P/E ratio of about 11.3, BT isn’t the screaming bargain it once was, but it’s hardly expensive either.

I think the shares are worth considering for long-term investors. But I have to admit, I still don’t quite get this company. Personally, I’ll focus my efforts on less risky, easier-to-read opportunities elsewhere in the FTSE 100.

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