Looking firmly forward and despite a previously stated preference for ‘whatever weather winners’ without significant exposure to external factors, the analysts said for the telecoms group the “pain is significant, but somewhat temporary”.
COVID-19 in particular has hurt BT in four areas, first-quarter results showed last week, including Openreach going further than other incumbents in other countries in ceasing in-home engineering work from March to May, while the BT Sport business suffered due to event postponements and BT offering bill credits.
Like rivals, BT’s business to business wholesale and SME segments, which form around 12% of revenue, are being hit by macro weakness.
Fourthly, the group’s pension deficit, which stood at £1.1bn at the end of March, down from £7.2bn the year before as liabilities dropped to £53.3bn, is sensitive to real gilt yields, the analysts said.
Of these four factors, the first two of these “are temporary”, with in-home engineering now resumed and sporting fixtures restarted.
Putting their rose-tinted binoculars to look ahead one year from now, the analysts said when BT reports first-quarter numbers for the 2021/22 financial year, this should show revenue and EBITDA in growth mode, with the potential for mid-single-digit growth from Openreach strengthening investor belief that its valuation could approach £20bn and underpin the overall group valuation.
“BT’s investment case should also de-risk in other ways over the next year – a pension agreement with similar payments to the current £907mln per annum plan (with possible upside from an asset-backed contribution); Premier League rights should be renewed for less than the current £325mln per annum; and 5G spectrum should be secured for less than £1bn.”
As the shares trade for less than six times 2021/22 earnings per share and a 7.9% dividend yield, Berenberg upgraded to a ‘buy’ recommendation from ‘hold’ based on an unchanged share price target of 130p.
BT shares, having fallen almost 47% over the past 12 months to below 95p, lows that were last sustained in 2009, jumped 6% to 104.25p on Tuesday morning.