Analysts at Numis Securities think that the UK government’s move to ask the telecoms regulator to rethink its proposal to cut the broadband wholesale price charged by BT Group PLC’s (LON:BT.A) Openreach business “is a clear and major positive for BT and Britain.”
In a note to clients, reiterating a ‘buy’ rating and 390p price target on BT shares, the analysts noted that Karen Bradley - the Secretary of State for Digital, Culture, Media and Sport – said in an open letter to Ofcom’s CEO that she is worried that a cut to the 40/10Mbps fibre broadband price will hurt capital expenditure for all-fibre broadband.
READ: Government intervenes in dispute between BT's Openreach and Ofcom over wholesale prices
They quoted Bradley as saying: “It is important that unreasonable profits within the sector are addressed. However, I am concerned that price suppression could reduce demand for better services, such as fibre, and so will disincentivise investment in the network."
The analysts pointed out that Ofcom is due to make a decision in early 2018.
They said: “On our estimates for the next three years, BT currently trades on 9.9x P/E (peer group: 14.8x); 9.4% FCFE yield (7.3%); 6.0% DPS yield (4.4%).
“Thus we think BT stands to benefit more from its P/E multiple expanding than FCFE estimates edging up.”