Regulator Ofcom’s move to legally split BT Group PLC (LON:BT.A) from its Openreach phone lines business hasn’t exactly impressed investors and City commentators.
But one leading bank is sanguine about the prospect.
In fact, Goldman Sachs repeated its ‘buy’ advice in the wake of the news and is sticking with its 540p a share price target.
“We argue that while it is disappointing there is no voluntary resolution, Ofcom’s formal request for legal separation does set out the clear boundary of what the regulator wants and limits further the risk of structural separation,” analyst Andrew Lee said in a note to clients.
On Tuesday, the TV and telecoms watchdog said it was preparing a formal notification to the European Commission to start the separation process.
Ofcom wants Openreach to become a distinct company with its own board, with non-executives and a chairperson not affiliated with BT. It also wants Openreach to have control over its branding and budget allocation.
Worries over this regulatory stand-off and the ballooning pension deficit have dogged the shares.
In the year to date they are down 23% and have underperformed the sector by 19%.
However many analysts now think the current valuation reflects these concerns.
Of the 16 houses logged as following BT by the Broker Forecasts site, nine are ‘buyers’ and only two have ‘sell’ recommendations. The remainder think the stock is fully valued.
The consensus price target has tracked the share price lower from 506p six months ago to 468 today. Yet that’s still more than a pound higher than the current share price (up 1.5% at 360p).