It’s been a rough period for the telecoms giant, but 2023 has started well and this expert believes there’s reason to stick with it. Unsurprisingly, they predict plenty of ups and downs.
Backing for BT (LSE:BT.A) as a “longer-term value story” has been offset by a warning that shares will be more volatile in the near term as the telecoms giant deals with weaker consumer trends.
Bank of America remains supportive through its “buy” recommendation but has reduced its target price by 5p to 182p following the company’s recent third-quarter results.
The shares have rallied by around 18% to 132p so far this year, but this comes after a roller-coaster 2022 performance in which they dived from near 200p to about 110p after cost pressures were flagged in an update in November.
Last week’s figures got a mixed response in the City, with revenues and earnings slightly below consensus due to a more price-sensitive consumer and increased competition.
However, Bank of America was impressed by the pace of the full-fibre broadband roll-out by regulated infrastructure arm Openreach, which it continues to regard as a “structurally undervalued” asset.
BT said Openreach passed about 810,000 premises in the quarter at an average build rate of 62,000 per week, meaning 38% of its target of 25 million has been completed.
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Broadband infrastructure competition is growing, but Bank of America points out that these rivals will also be feeling the pain of inflation and rising interest rates.
The bank is more cautious about prospects for the Consumer division, where growth has slowed since big price rises were announced in April 2022. In the three months to the end of December, BT reported consumer revenues fell 6% to £2.4 billion.
The bank said: “We attribute this to a more price-sensitive UK consumer but also an increasingly competitive marketplace with Vodafone (LSE:VOD) gaining momentum with its lower-cost, no-frills product.”
BT's latest inflation-linked price rise of 14.4% is due in April, but expectations for an increased rate of churn mean that the bank thinks the drop-through to revenues growth will be towards the lower end of BT’s guidance.
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It adds that forecasts for the next financial year look a little high and that this could result in lower guidance in the May full-year results.
However, the bank said: “We see significant value potential mid-term in the Openreach asset, and with a mechanical £1 billion deduction in capital expenditure once the network roll-out is complete, we expect value to accrue in the share price. We maintain our buy rating.”
Polo Tang, an analyst at UBS, is more cautious about prospects after recently reiterating his price target of 130p. As well as the uncertain consumer trends, he is wary over rising broadband infrastructure competition for Openreach and the potential for the BT pension scheme to require more support.
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