Worries about its future dividends once again unsettled telecoms giant BT Group plc (LON:BT.A) this afternoon as Morgan Stanley cut its rating for the stock on worries that increased spending could lead to pressure on its payouts.
In a note to clients, the US bank downgraded its stance for the FTSE 100-listed firm to ‘equal-weight’ from ‘overweight’.
Analysts at Morgan Stanley pointed to worries that new regulations, which come into play next year, mean BT will have to increase spending on its fibre network.
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They said that increased spending might mean the group will not have enough free cashflow to cover its future dividend payments.
In mid afternoon trading, BT shares were 0.2%, or 0.7p lower at 308.85p, extending yesterday’s falls which followed another cautious broker note.
Jefferies reduced its target yesterday to reflect dividend concerns
Jefferies International cut its target price for BT shares back to 280p from 325p, while retaining a ‘hold’ rating on the stock.
The US broker said its reduced its target price reflected dividend concerns surrounding the telecoms giant due to ongoing issues over its pension funding.
Jefferies’ analysts said: “Higher pension funding is the clearest threat to dividend prospects, underlined by a tough guidance update from the Pensions Regulator.”
READ: Jefferies cuts BT target price to reflect dividend concerns
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.”