Given the share price hammering BT Group PLC (LON:BT.A) has taken this year – down almost 27% - analysts at Jefferies reckon there’s no doubt that the telecoms giant “promises value”.
But that’s about as good as this morning’s note got. The US broker kept its rating at ‘hold’ but lowered its target price to 265p, claiming that next week’s second quarter results will reflect “weak operating momentum”.
READ: Government intervenes in dispute between BT's Openreach and Ofcom over wholesale prices
Given that expectation, Jefferies has kept its forecasts “materially below” the current consensus.
It is looking for full-year underlying earnings (EBITDA) of £7.50bn on revenues of £24.09bn.
BT has so far kept true to its progressive dividend policy, but Jefferies thinks even a cut to that can’t be ruled out. Analysts at the broker are forecasting a dividend of 15.4p for at least the next three years.
Ofcom issues weigh
Another issue surrounding BT in recent months has been Ofcom taking a perceived tough stance against the company, and Jefferies says the new chairman will have his work cut out trying to rebuild the relationship between the company and its regulator.
“BT's incoming Chairman faces the clear priority of repairing relations with Ofcom. This will require a very visible demonstration of network investment ranking above shareholders.”
Don’t expect any concessions from Ofcom in the near future, with the broker warning that the regulator has “little incentive to step back”, making clear that it wants to “stimulate retail investment as well as investment”.
Government-Openreach broadband deal hits a snag
If a report in The Telegraph on Tuesday is to be believed, BT really can’t catch a break at the moment.
The paper claimed that a deal between the UK government and BT’s Openreach subsidiary aimed at delivering superfast broadband to 1.4mln rural homes faces some legal hurdles.
READ: Numis thinks UK government move to ask Ofcom for broadband whole pricing rethink is "a clear and major positive " for BT
Legal advisers are said to have raised concerns that a voluntary offer from Openreach could be challenged in the courts as unfair state support.
Instead of working with BT, the government could decide to impose new regulations that would force its subsidiary to upgrade rural broadband lines.
BT shares were off another 1.3% to 269p in mid-morning trade.
That idea has support from rivals TalkTalk and Sky, who fear that Openreach would be able to dictate the technological and financial terms of a negotiated deal.