In late morning trading, the FTSE 100 listed shares were 2.3%, or 6.25p higher at 274.25p.
READ: Morgan Stanley thinks BT shares look “cheap on a sum-of-the-parts valuation” but “cautious about stepping in too early"
In a note to clients, UBS’s analysts said the increase in rating and target was driven primarily by a lower pension deficit estimate at £6.5bn gross versus consensus of £11bn-£12bn.
The analysts added: “We remain cautious on the fundamentals for BT but, at current levels, we think the downside from overhangs weighing on the share price … is priced in and that newsflow over the coming quarters could turn more positive.”
They think UK government support could reduce or reverse regulatory cuts on wholesale fibre pricing, with an update due in February 2018, and this could mark the start of “an inflection in earnings momentum.”
The analyst added that an agreement with the BT pension trustees on the deficit looks likely by May 2018, but could come sooner, and it also expect the Premier League broadcast rights auction to be in February 2018.
They said their estimates for BT are little changed, and they expect underlying earnings (EBITDA) to be stable.