Barclays says the share price markdown for BT on the increased capex unveiled by the telco to accelerate its fibre roll-out misses the long-term benefits.
This is “good/high ROCE capex”, Barclays argues and as such is a “positive value driver longer-term”.
BT is well poised to show rebounding revenues and underlying profit [EBITDA] over the coming years, argues the bank, hence it retains an ‘overweight’ rating and a higher price target of 220p (was 190p)
JP Morgan is also focused on cashflow, noting that the new more aggressive fibre capex plans dwarfed the offsetting super deduction tax benefits, driving major 25% a year cash flow downgrades across the next 5 years.
Is the buy case intact?
Has this derailed a buy case? No, argues the US broker, with the changes to bring longer-term benefits while if it can arrange an off-balance sheet joint venture to help with funding this would completely reverse the downgrades.
Like Barclays, JPM also expects revenues to start to improve soon and once the peak of spending on the fibre roll-out passes in 2027 BT offers an ‘enviable’ 16% cashflow yield on its crunching.
Credit Suisse, too, says it is cashflow pain short-term outweighed by longer-term value creation from fibre-to-the-premise (FTTP) deployment and the benefits of a smaller pension deficit.
“Outperform” is its rating with an unchanged 200p target price.
Credit Suisse notes that the pension fund deficit revealed yesterday was nearly £2bn lower than the consensus expected while the new capex is being spent on what it believes is an attractive project.
“We have long argued, FTTP should drive better line loss, better retail user revenues or ARPUs (upsale), better wholesale ARPUs and ultimately better returns.”
BT shares today rose 2.5% to 163p.