The London arm of Deutsche Bank didn’t pull any punches with its ‘sell’ recommendation on BT Group PLC (LON:BT.A).
It damned the telco with faint praise by saying Thursday’s third-quarter results were ‘okay’, but it was disappointed the dividend payment was left pat. It has expected pay-out to grow.
READ: BT shares slip back as sports rights costs drag on second quarter profits
“No ‘major’ bad news may mean stock moves up a bit but major outstanding issues remain, which should cap any ‘no new news’ recovery,” it told investors in a note Friday.
Those ‘major outstanding issues’ presumably are the pension deficit and the future of Openreach, BT’s regulated monopoly infrastructure arm.
Deutsche’s price target is 265p, which is around 10p higher than the current price and a bit of a ‘head-scratcher’, given the bank’s ‘sell’ advice.
Internal logic
The internal logic of broker Numis’ call on BT stacks up a little more.
It is a ‘buyer’ up to 390p, although given the current potential headwinds, that target looks a little punchy.
Anyhoo, the Numis team, led by John Karidis, has focused on the free cash flow generation of the business, which it reckons was ahead of expectations. It expects some upgrades in this regard.
Of the 14 analysts logged by the Broker Forecasts site as following BT, only five are in the Numis ‘buy’ camp. Six think the stock is fully valued, while the remainders are ‘sellers’.
The consensus price target currently sits at 331p.
Results reprise
On Thursday, BT shares reversed initial gains as the rising costs of securing sports rights and investing in customer services dragged on second quarter profits.
In a trading statement for the second quarter to 30 September, the telecoms giant posted adjusted underlying earnings (EBITDA) of £1.8bn, down 4% on the same period a year ago.
Adjusted revenue dipped 2% to £5.9bn and adjusted pre-tax profit dropped 10% to £789bn as a strong performance in consumer businesses, including the EE mobile unit, failed to offset the decline in its enterprise divisions.
Global Services revenue fell 10% with BT blaming ongoing challenging market conditions, lower IP exchange volumes and equipment sales in line with its strategy to reduce low margin business.
In an effort to address the struggles in its enterprise businesses, BT is undergoing a restructuring programme.
Chief executive Gavin Patterson said the shake-up remains on track to deliver run-rate savings of £250mln.