Barclays cuts BT, TalkTalk and Vodafone price targets
Barclays cut its price targets for BT, TalkTalk and Vodafone as the bank reviewed risks to telecoms companies' guidance and dividends from the Covid-19 crisis.
The bank's analysts left their recommendations unchanged for the three UK companies. BT, rated underweight, had its price target cut to 130p from 150p. Barclays reduced its price target for TalkTalk, rated overweight, to 130p from 150p and for Vodafone, also overweight, it reduced its target to 170p from 190p.
We believe that EU telco businesses are resilient to the direct Covid-19 impact and likely macroeconomic downturn. They are however not immune," Mathieu Robilliard and his fellow analysts wrote in a note to clients.
"Overall, we do expect much of our coverage universe to revise 2020 guidance downwards … That said, we would expect telcos to stress the strong recurring revenue streams, solid FCF [free cashflow] generation, and low balance sheet/refinancing risks."
BT faces rising pressure on cashflow from competition, lower earnings, higher capital spending and likely pension contribution increases, Barclays said. The company's dividend is the "elephant in the room", the analysts said, cutting their estimate to 5p a share from 7.7p a share.
TalkTalk should be less affected than other telecoms companies by Covid-19 because of its lack of mobile business but it is in the fiercely competitive value end of the market and is exposed to an economic slowdown. Increased competition would have an impact on earnings and free cashflow, Barclays said.
Covid-19 will have a relatively modest impact on Vodafone but with 25% of earnings in southern Europe and 20% in Africa means the company is exposed to an economic slowdown. However, the company is more resilient than in the financial crisis because most of its service revenues are bundled, Barclays said.
"We do see potential macro pressures returning as a second-order effect [for Vodafone], which will likely be weighted later in the year," Robilliard wrote.