Credit Suisse has turned positive on BT Group PLC (LON:BT.A), citing a “much increased level of confidence” in the company’s ability to return to sustainable earnings growth from the 2021 financial year.
The investment bank raised its recommendation on BT to ‘outperform’ from ‘neutral’ and lifted its target price to 280p from 270p.
“The fact that BT trades on a four-year low enterprise value/earnings (EBITDA) adds to our conviction and more than offsets any short-term impact that the recent disappointment on fiscal year 2020 EBITDA guidance may have,” Credit Suisse said.
“We are 2% ahead of fiscal 2022 consensus forecast for EBITDA.”
Last month, BT reported a 2% drop in adjusted underlying earnings (EBITDA) to £7.39bn and a 1% decrease in adjusted revenue to £23.46bn for the year to March 31, as growth in the consumer business was offset by regulated price reductions in Openreach and declines in the enterprise businesses.
For the 2020 financial year, BT expects adjusted EBITDA will fall to £7.2bn-£7.3bn as adjusted revenue falls by another 2%.
Fibre investment to improve revenue and earnings from 2021
BT said it would be focusing on investing in fibre broadband in the coming year.
It increased its target for rolling out ‘fibre to the premises’ broadband from 3mln to 4mln homes and businesses by March 2021.
Credit Suisse expects BT’s Openreach division will bring fibre to 15mln UK premises by 2025. The bank believes this will drive upgrades to its Openreach line loss forecasts and improve BT group revenue and EBITDA growth trends from fiscal year 2021.
“Our revenue forecasts rise by 0-2% for full years 2020-22 on lower Openreach line loss of 2% per annum (3% per annum previously),” Credit Suisse said.
“Our 2020-22 EBITDA forecasts fall by 0-1% mostly reflecting additional 2020 consumer costs for new initiatives that we expect to boost medium-term profitability.”
BT's move away from sports rights ownership to boost free cash flow
BT confirmed that it would bid to retain the Champions League rights for a further three seasons from 2021 when they come up for auction this year but added that the group would take a “very disciplined approach to how we think about sports rights”.
Credit Suisse expects BT’s move away from sports rights ownership to boost free cash flow by up to £200mln by 2023 and would lift its fair value to 330p.
“Risks include a deep UK recession and a Department for Digital, Culture, Media and Sport decision regarding a possible ban of Huawei equipment for UK telecom networks,” the bank said.
BT’s EE network has dropped Huawei phones from their 5G launch plans amid a US export ban on the Chinese telecoms firm.
The UK is still reviewing its 5G telecoms policy and whether to allow Huawei to supply components.
Shares in BT dipped 0.3% to 193.1p in morning trading.