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BT shares dip as Credit Suisse cuts target price and earnings forecasts

Credit Suisse continues to predict capital expenditure will rise by £3.4bn per year
Openreach
BT's Openreach arm is to upgrade the UK's broadband network

BT Group PLC (LON:BT.A) shares fell after Credit Suisse cut its target price to 280p from 320p, saying it expects costs to rise as its Openreach subsidiary faces pressure to upgrade its fibre network.

Credit Suisse said it continues to predict capital expenditure will rise by £3.4bn per year over the next five years as Openreach invests in broadband network upgrades to deliver ultrafast speeds to 12 million premises by the end of 2020. 

READ: BT will not cut its dividend despite concerns over rising costs, says Numis

It left its rating at ‘neutral’ but lowered its estimates for underlying earnings (EBITDA), earnings per share and free cash flow (FCF) for fiscal years 2019 to 2020 by an average 1%.

While BT hopes to claw back the costs of the fibre upgrade through customers, regulator Ofcom has proposed cutting the wholesale prices Openreach charges telecoms operators.

“BT now faces several major events in early calendar 2018 including 1) Ofcom Wholesale Local Access final decision; 2) actuarial Pension deficit announcement; 3) Openreach FTTP build decision; and 4) English Premier League rights auction,” Credit Suisse said.

“These events will be key, in our view, to forecasting BT's FCF over the next few years more accurately and better assessing the sustainability of BT's dividend over this period.”

READ: BT: London arm of Deutsche Bank pulls few punches with 'sell' recommendation

Last Thursday, BT reported a 4% decrease in adjusted EBITDA of £1.8bn, dragged lower by rising costs of securing sports rights and investing in customer services. 

Shares edged down 0.93% to 249.95p in afternoon trading. 

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