The German bank upgraded its rating to ‘hold’ as the shares are now seen as “more reasonable versus peers”, with the target price lifted to 125p from 110p.
BT’s commitment to rolling out its fibre broadband network to 20mln homes by mid-to-late 2020’s is a good thing for the company’s long-term future, the analysts said in a note to clients.
“A full fibre network will be more resilient and cheaper to maintain,” they added, with the faster and further that BT builds the less likely it is likely to suffer market share losses.
However, the delay in announcing this full-steam rollout has led to cumulative risks from overbuilding the network, a trend towards convergence and exposure from TV and business clients from Covid-19.
Throw in the pension deficit, with the triennial review coming up at a time of weak asset values, “and the combination has been damaging”.
Therefore, the analysts said they continue to be surprised at how positive consensus has been on BT shares during the slow strategic metamorphosis towards fibre and the implications for its funding, although there’s little positive in a share price that has fallen from almost 500p at the end of 2015 to near 100p this month.
“We see a number of risks for the future, particularly from the loss of Openreach's UK wholesale revenues (BT controls 80% of broadband lines), convergence, and pension, but the company has now cut its dividend to fund its fibre ambitions (no longer the love that dared not speak its name) and capex expectations have been raised by £600-700m.”
Noting that the dividend cut from is almost the same as the amount that capex is set to rise, “so it will take a while to improve dividend quality as cost reductions come though”.
Deutsche raised its longer-term underlying profit estimates to reflect lower costs, but forecasts for near term cashflows fall.