Berenberg downgrades BT to 'hold'
Analysts at Berenberg downgraded telecommunications giant BT Group from 'buy' to 'hold' on Tuesday, citing a "corridor of concerns".
Berenberg said it has long acknowledged political risks to BT's CPI+3.9% pricing mechanism at the next UK general election, plus the longer-term threat to Openreach from alternative fibre networks.
However, in the near term, the analysts previously thought that investor sentiment towards BT would improve in 2022-23 from a return to growth and achievement of its £7.9bn underlying earnings target.
"We underestimated the pressures on BT's business-facing divisions, and the Q1 results raised a multitude of questions about BT's investment case," said Berenberg, which also lowered its target price on the stock from 220.0p to 190.0p.
The German bank added that it worries that by the time the above concerns can be resolved that it will then be approaching the general election, at which point the pricing and Openreach debates will "increasingly" take over.
"BT trades on 16x EV/OpFCF and 5% normalised EFCF yield for 2023/24E, versus telecoms incumbents on 15x and 7% respectively. However, on metrics that smooth out investment, like P/E, BT looks cheaper, on 8x P/E (sector: 12x)," concluded Berenberg.
Reporting by Iain Gilbert at Sharecast.com