BT Group PLC (LSE:BT.A) shares were being pulled two ways on Thursday, pushing back up against a four-month high before swinging into the red.
Shares rose sharply on Wednesday after the government confirmed that full expensing will be made permanent, rather than limited to the next three years as had been said in the spring Budget.
However, the telco also held a briefing on its BT Business corporate-facing division yesterday, which, according to analysts at Berenberg was a “sobering affair.”
The company said the briefing provided an overview of strategy, transformation plans, and its 'go-to-market strategy for the four segments in which we operate – small and medium business, corporate and public sector, wholesale and global' from its divisional chief and group financial chief on the plans and prospects.
Starting with the good news, analysts at Berenberg and UBS explained the news full expensing is being made permanent by Chancellor Jeremy Hhunt and will act to reduce BT’s tax payments in the second half of the decade.
Berenberg currently forecasts a tax charge of £155 million in 2026/27 and £294 million in 2027/28, but with full expensing being made permanent, these costs have scope to reduce towards the £50 million level.
The UBS analysts echoed this and pointed out that there would be "no impact" in the near-term as consensus forecasts already assumed no UK taxes for the next three years.
While BT will pay limited UK taxes out to 2028 taxes are likely to creep back up thereafter, with tax payments simply deferred rather than avoided.
UBS calculated that the tax savings theoretically have a net present value of 4-5p per share, all else being equal.
"While news of tax changes was flagged in the press in recent days, we think the positive share-price reaction reflects confirmation the changes would be permanent and the possibility that the Labour Party would not oppose the measures should it come to power," the analysts said.
BT Business update
But it wasn’t such good news at the business division presentation, which UBS called a "candid and credible assessment" of the challenges facing the unit, indicating things were likely to get worse before they get better, with downside risk to consensus forecasts.
“We came away from the presentation with the clear takeaway that management was trying to get consensus expectations down for the division,” the team at Berenberg said.
“At three different times in the presentation, BT Business CEO Bas Burger said the 'short-term pain of radical modernisation will lead to long-term benefits for our customers, our partners, our people and ultimately the shareholders of BT'.”
The analysts at Berenberg suggested the BT Business consensus forecast will need to come down.
Shares face risks?
Cheap on earnings, but expensive on cash flow, was how Berenberg described BT, keeping a 'hold' rating for now.
UBS said the shares face several risks/overhangs", listing them as Virgin Media O2 "possibly revisiting M&A discussions with TalkTalk", Sky shifting some of its wholesale broadband business away from Openreach, new CEO Allison Kirkby potentially accelerating the existing strategy with the result of a dividend cut, the 24.5% stake by Altice "may now be more of an overhang than an element of support", and finally that the Labour Party is "reportedly looking to remove mid-contract price rises for consumers and indexation at Openreach".
The Swiss bank reiterated its 'sell' rating and 115p share price target.
Over at Goldman Sachs, the telecoms team have taken a much brighter view, hiking their target price to 290p from 280p.