BT Group PLC (LSE:BT.A) shares fell 1.8% to 118.15p after UBS became the next investment bank to slash its price target for the shares this month, following Citi's cut last week.
The Swiss bank said the FTSE 100-listed teclo is likely to experience another mixed year in 2023 as it tries to push through above-inflation price increases of around 15% in January while also facing rising broadband infrastructure competition for its Openreach arm.
“We remain cautious on the scope for above-inflation increase in BT Consumer given pressures on the UK consumer and regulatory scrutiny of mid-contract increases,” said analyst Polo Tang in a note to clients on Wednesday.
Last month, it was reported that BT has slowed down its rollout of faster fibre broadband as the company looks to save costs and the economy judders into a recession, while a pay deal was struck to bring industrial action to an end.
Line losses at Openreach are expected to remain negative in the coming quarters, Tang noted, while wholesale pricing is also changing.
With reports that BT could offer the likes of Vodaphone, TalkTalk and Sky lower wholesale prices, the analyst said Openreach’s fibre-to-the-cabinet (FTTC) pricing is likely to increase by CPI (at a capped level), while fibre-to-the-premises (FTTP) pricing will likely be kept static, which Tang said will narrow the FTTP premium.
UBS has kept its ‘neutral’ rating but cut its price target to 130p from 174p as while Tang has these concerns, he said they “may be largely priced in at current levels”, with the shares last closing at 120.3p.
He did suggest, however, that the divestment of BT Sport has not been fully reflected in consensus forecasts.
The deal with Warner Bros Discovery will lead to a £600mln drop in revenues and have a neutral effect on earnings, but have a £100-200mln drag on free cash flow, the analyst said.
BT is paying a minimum guarantee of £500mln per year, of which £300mln is recognised as operational expenditure and the remaining £200mln recognised in cash flow/working capital.