Several analysts cut their targets for BT Group PLC’s (LON:BT.A) share price over the coming 12 months, following the telecoms titan’s results this week, but were impressed by new chief executive Philip Jansen.
Barclays said the new CEO “presented an upbeat assessment of BT's medium-term prospects and an endorsement of the existing strategy (although he clearly looks to accelerate progress)”.
READ: BT keeps dividend unchanged and ups fibre investment target
However, details were limited, the bank lamented, especially surrounding medium-term free cash flow and the sustainability of the dividend.
“There was a relatively modest reset of expectations, but we note continuing revenue pressure in several areas that will in our view fuel continued speculation around future FCF/dividend.”
Barclays sees the valuation as inexpensive on free cash, even with a forecast for at least 10% decline for 2021 and 2022. “But we see no catalyst,” analysts said and so reduced its estimate for the 2021 dividend per share by 33%, cutting its price target to 240p from 250p.
Analysts at Numis, which have a 340p target price, gushed that they like Jansen being a “a straight talker, and impatient for BT to leverage its unique portfolio of major assets to progress meaningfully faster (but not too fast to risk BT executing sub-optimally)”.
READ: BT dividend looks safe…for now
Contrary to press reports of a boardroom split, Numis said the decision to keep the dividend was not a “close” one with the board unanimous and no member calling for a cut.
Jansen’s increased ambition to connect ultrafast fibre to 15m premises by mid-2020s is, Numis noted, subject to many key issues managed by Ofcom/Government being appropriately settled. “If BT is properly incentivised to deploy FTTP to 15m properties by the mid-2020s, group capex may rise. But, to finance this, the Board will not automatically re-consider the dividend policy, but it will also consider (a) borrowing more; (b) reprioritising capital allocation, and (c) further efficiency measures.”
Sharing thoughts after the analyst conference call, Morgan Stanley's take was that it was "too early for BT to revise the dividend policy", with the decision to fund the higher capex being a "matter for the Board at the right time", adding that "things can always change".
Morgan Stanley also noted that an Openreach spinoff was not being examined "at all", according to Jansen, with the division being at the heart of BT. Openreach is a strategic asset and having the BT retail as an anchor tenant is very important as it gives certainty when Openreach make big investments.
On BT Sport, content investments into are seen as having been successful, but BT will not expand on its sports offering.
Elsewhere, HSBC also trimmed its price target to 270p from 280p and Goldman cut its target to 290p from 300p.