Real Assets
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Rising data usage, hybrid working, implementation of cloud-based services and the migration away from legacy copper-based networks has created an increasing demand for reliable, high-capacity connectivity provided by fibre networks.
However, while the sector's growth story remains compelling, recent challenges across the alternative network (altnet) market have highlighted the importance of build discipline, network footprint, customer acquisition, funding certainty, capital structure and focus on the transition from rollout to cash generation.
These factors are likely to differentiate stronger operators from those that expanded rapidly into more competitive markets using higher levels of debt or optimistic take-up assumptions.
Why fibre broadband matters
The UK Government continues to support the rollout of gigabit-capable broadband, while the retirement of legacy copper-based services supports the wider migration towards fibre networks. As fibre infrastructure becomes increasingly essential to households, businesses and public services, it provides the potential for recurring revenues and, over time, more stable cash generation as customer penetration increases.
A more selective market
Recent market conditions have highlighted real challenges across some parts of the UK fibre broadband market which have been mainly related to altnets with low‑quality, expensive networks, slow customer take-up, high operating costs, high levels of debt and funding constraints.
Outcomes differ significantly depending on network quality, build cost, local competition, operating discipline and leverage. Businesses that have built cost-effectively in attractive markets are generally better positioned to create long-term value than operators facing higher costs, greater competition and refinancing pressures.
Foresight's investment approach
Foresight’s approach is focused on investing in companies with experienced management teams and taking a disciplined asset management approach to build high-quality, low-cost networks with a lean operating cost base.
The portfolio companies focus on areas where competition is low and active sales and marketing efforts can build a large base of high quality, sticky customers with the aim of efficiently driving these companies to profitability and a cashflow
generative state.
Key elements of the strategy include:
- Competitive build costs to support long-term returns and downside resilience
- Attractive local footprints with a clearer route to customer growth
- Funding certainty, with networks fully funded through to free cash-flow generation
- Separate operating entities rather than consolidated into one group structure
- Limited leverage, reducing the risks associated with higher interest rates and slower customer take-up
- Active asset management focused on customer acquisition, operating discipline and profitability
From rollout to cash generation
The next phase for the fibre sector is commercialisation. As networks mature, the focus shifts from construction to customer acquisition, operating efficiency and cash generation.
Foresight currently expects its networks to move towards positive cash flow in 2027, marking an important transition towards a more mature infrastructure asset profile
