A long-time seller of BT Group PLC (LSE:BT.A) has reversed course and upgraded the telecoms giant.
In an endorsement of sorts, UBS now has a 'neutral' rating and said most of the hurdles it foresaw in 2021 have been dealt with, specifically the 5G spectrum auction, fibre regulation, the pension review and rising broadband infrastructure.
One major risk remains and that is to broadband arm Openreach, but with M&A a feature following the increase in Altice’s stake to 18%, UBS has raised its price target to 170p from 135p.
The Swiss bank is sceptical over the possibility of a full takeover bid, highlighting substantial barriers in the form of the UK government and the BT Pension Scheme.
“The UK government has a right of veto in strategic sectors under the National Security and Investments Act and has already indicated it could intervene in the case of BT.
“Separately, a change of control could see the pension deficit being viewed on a solvency basis rather than an actuarial basis leading to a deficit of >£23bn as of June 2020. “
Openreach makes up the bulk of UBS’s valuation, but developments such as TalkTalk announcing new wholesale broadband partnerships in the coming months and VM02 outlining its plans remain major uncertainties hence the neutral stance.
Price rises at the end of the month are a potential positive, especially if rivals follow suit as was reported would be the case yesterday.
In theory, these might be 8-9% (CPI+3.9%), though increases on that scale might run into regulatory problems believes the bank.
Shares in BT rose 0.4% today to 178.9p.