BT Group PLC's (LSE:BT.A) share price could more than double, according to JPMorgan, which thinks 2024 could be a “break-out” year for European telcos.
The investment bank’s bullish sector stance is based on price increases which imply upside risk to consensus, EBITDA growth, free cash flow increases, “best-in-class" EPS growth, falling interest rates and prospects for further consolidation in the sector.
Its top sector picks include BT, which is rated ‘overweight’ with an increased share price target of 290p, up from 280p.
The broker notes BT’s share price has “aggressively yoyoed” between a low of 100p and a high of 200p, with a debate around growth prospects, the competitive landscape (the fibre altnet threat) and the resulting ROCE outlook.
But JPM highlights a a rich catalyst pipeline that “could see BT re-rate from 4.2x to 6.0x EV/ EBITDA, and implying a more than a doubling of the share price to 270p”.
It pointed out Dutch telecoms group KPN has progressively traded up from 5x EV/EBITDA (2020) to 6.9x (today) as its revenue performance has inflected to a structural 2-3% growth rate - a level JPM expects BT to hit this year.
It also continues to expect BT’s equity free cash flow generation to increase from £1.2 billion this year (5% yield) to £3.2 billion by the end of the decade (34% yield).
The bank has placed BT on positive catalyst watch ahead of UK regulator Ofcom allowing ongoing CPI-linked price increases through its ruling later this year and BT’s third-quarter results in February, which should show its ability to sustain its ongoing growth delivery, it thinks.
JPM also expects the new chief executive to confirm BT’s dividend and growth ambitions upon joining the firm early next year.