Jefferies sees BT worth 340p
As regulatory clarity nears, BT Group is worth 340p per share, said Jefferies on Friday, reiterating its 'buy' rating.
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16:40 24/04/24
Fixed Line Telecommunications
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17:09 24/04/24
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Jefferies observed that regulator Ofcom has endorsed principles of "fair bet" fibre-to-the-premises returns and is likely to define enablers needed to support investment by the middle of this year.
"BT's cautious outlook conveys an appropriate tone at this time," said Jefferies.
BT already faces a raft of consumer headwinds in the 2018/19 financial year, including Champions League inflation, back-book repricing since September, price cuts for around 1m landline-only users, mobile bill limits and the tail-end of roaming regulation - while next year brings a full-year impact of back-book repricing, no price increase for BT brand fixed/mobile, auto-compensation, a higher licence fee and price caps on intra-EU calls.
But Openreach headwinds are about unwind rapidly as generic ethernet access (GEA) price controls lap out from April and volume discounts from August/September. "With fibre adoption growing and mix shifting to faster products, Openreach should return to growth in 2H19/20."
Valuing Openreach using a 'regulatory asset base' return approach "is credible", the analysts argued, pointing out that Ofcom permits a 12%-14% pre-tax target return for FTTC and may consider a small premium for FTTP.
Deployment to 1m premises per year should deliver RAB growth of £0.7bn per year and blending premium FTTP with lower target returns on other services, percolates through the financial model to a £22.5bn Openreach enterprise value and delivers a 340p sum-of-the-parts value for BT.