HSBC downgrades BT Group following 'underwhelming' Q3 and guidance
HSBC took an axe to its target price for shares of BT Group and downgraded its recommendation on the stock following what it labelled an "underwhelming" set of third quarter financials.
BT Group
104.20p
09:09 19/04/24
Fixed Line Telecommunications
1,762.76
09:09 19/04/24
FTSE 100
7,831.08
09:10 19/04/24
FTSE 350
4,307.07
09:10 19/04/24
FTSE All-Share
4,263.49
09:10 19/04/24
The analysts also highlighted the telecommunications carrier's lowered financial guidance, with BT management now expecting normalised free cash flow in the lower half of the previously provided £1.9-2.1bn range.
Several questions also remained around the regulatory framework for the company, including the need for greater clarity on the fair bet, cumulo rates, and whether BT would be able to sign long-term price-volume contracts.
As well, the government's requirement that it replace existing equipment supplied by "certain vendors" would weigh on its free cash flow over the next three years, HSBC predicted, penciling in £400.0m-worth of charges.
Nonetheless, the broker added that while some important issued remained to be resolved around the firm's regulatory settlement, "Ofcom has moved in the right direction".
The analysts also said that they would have preferred a slower roll-out of 5G in order to compensate for the vendor requirements but that such a move would have been interpreted as "letting the UK down".
"Such is the malaise in the BT story that we now struggle to see the shares being given the benefit of a better long-term regulatory settlement until operational numbers are actually improving."
For all of the above reasons, the broker downgraded its recommendation for the shares from 'buy' to 'hold'.