UBS pointed out that Labour leader Jeremy Corbyn is reportedly considering policy proposals that could lead to the nationalisation of the telecoms sector, which would include BT.
The investment bank also noted that the Conservatives have outlined an ambition for the roll out of super-fast fibre broadband across the whole of the UK by 2025 but it is not clear how it will be funded or what the returns will be for BT.
BT’s cash pile is expected to remain squeezed in coming years as its Openreach division rolls out full fibre broadband across the UK. It plans to bring fibre to aims to roll out fibre to 15mln premises by mid-2020 so long as the government and regulator allow the company to make a fair return.
The group is also facing rising competitive pressures in mobile and from rivals planning expansion of their superfast broadband networks.
UBS said it thinks accelerated fibre rollout at Openreach is the most likely outcome and should create value longer-term. It expects BT to increase capital expenditure to fund the fibre roll-out, leading equity free cash flow to fall to £1.9bn from £2.3bn per year.
As a result, UBS now expects BT to pay a dividend per share of 10p, down from 15.4p previously.
“Separately, we think the competitive environment in Consumer could moderate from next year and that BT could deliver additional cost savings,” UBS said.
“However, consensus estimates are likely to see further downgrades in the near term before we can see upgrades longer-term.”
UBS maintained a ‘neutral’ rating on BT's shares but cut its target price to 165p from 240p.