Macquarie raises target price on BT, says investors too pessimistic

Macquarie lifted its recommendation on shares of BT Group to 'outperform' for the first time ever, telling clients that investor caution around the prospects for the operator's future free cash flows had now overshot and that markets were overlooking the upside to be had from its EE unit.

In particular, markets were being too negative on on FTTp, it said.

The Australian broker also touted BT's "unparalleled" position, with more total spectrum in the UK than any other European operator and the only vertically integrated end-to-end 5G network.

For fiscal years 2017/18 and 2018/19 Macquarie only lifted its earnings per share estimates by 1% each, but it forecast a recovery from 2019/20 onwards thanks to the combination of a superior wireless proposition and FTTp, which drove upwards EPS revisions of over 6%.

Macquarie also lifted its long-term forecast for free cash flows at EE to reflect the impact those two factors would have on 5G small cells.

BT's dividend had also been set at a realistic level, it said.

All of the above led the broker to raise its target price from 270p to 330p.