BT Group plc (LON:BT.A) saw its shares fall back today as Jefferies International reduced its target price for the telecoms giant to reflect dividend concerns due to ongoing issues over its pension funding.
The US broker has cut its target price for BT shares to 280p from 325p, while retaining a ‘hold’ rating on the stock.
In reaction, BT shares on the FTSE 100 index were 0.3%, or 1.05p lower at 307.8p in mid-morning trading.
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In a note to clients, the Jefferies’ analysts said: “BT has sensibly injected realism into market expectations by softening its dividend guidance and declining to set FY18/19 targets.”
They added: “While an unfortunate combination of circumstance might continue to steer cash flows lower after the regulatory shocks of FY18/19, forcing a DPS (dividend per share) cut, this is not our base case.”
But, the analysts said: “Higher pension funding is the clearest threat to dividend prospects, underlined by a tough guidance update from the Pensions Regulator.”
They noted that the Pensions Regulator’s guidance issued two weeks ago called for 'decisive action' where 2017 valuations reveal funding shortfalls.
The analysts said they estimate BT's pensions deficit at around £11bn as at June 30 2017, but added that “a 50%-60% larger deficit and 20% less time to fund it could force BT's cash contributions materially higher.”