8th Dec 2023 08:21
(Alliance News) - While BT Group PLC might have a number of problems hanging over it, the telecommunications firm's Openreach division is not one of them, German bank Berenberg believes.
Berenberg, which rates BT at 'hold', said it is not Openreach which is stopping it having a more positive view of the stock. Berenberg has a GBP1.35 price target on the shares.
Berenberg's update followed a briefing by BT on its Openreach arm.
"Openreach's briefing on Thursday was very self-assured. This may have something to do with the 8% revenue and 12% [earnings before interest, tax, depreciation and amortisation] growth that it reported in H1. The session largely evangelised about fibre broadband, a topic on which Chief Executive Officer Clive Selley will receive little pushback from any stakeholder group," the German bank explained.
BT labelled full fibre the "future" for its customers, the UK economy and for businesses.
Berenberg added: "We feel management deserves credit for showing Openreach's progress yesterday, relative to the 10-year forecasts presented two years ago. Overall, it was very encouraging. Build is being delivered at below GBP300 per premise. Openreach is seeing faster uptake of fibre than expected, with early-build cohorts seeing take-up of 50% and still increasing."
Openreach has done a sound job of keeping a lid of costs. The one fault at Openreach, however, is its tepid broadband base, Berenberg analysts said.
"Openreach is at the very bottom of the forecast range given two years ago, and trending to go below the range, despite management two years ago having called its scenario-testing 'vicious and extreme'," it said.
All-in-all, Berenberg is positive on Openreach, but it is other aspects of the BT business that the German bank has issues with.
BT's pricing, which is for growth of 3.9% on top of the consumer price index, possibly puts it in the cross-hairs of political scrutiny. It also believes consensus expectations for the Ebitda at BT Business is too high, while net debt consensus is "too low". In addition, Berenberg does not believe BT has enough excess cash in its coffers for additional shareholder returns.
Berenberg added on Openreach: "There is doubtless a debate to be had about Openreach, but it is long-dated, around the long-term structure of the UK fixed-line market. We are more pessimistic than management, expecting Openreach to end the decade with less than 19 million broadband customers (the low end of Openreach's range is 20.5 million; current base 21.2 million) and we forecast revenue and Ebitda to turn to modest decline in the second half of the decade as alternative networks increase penetration. However, for the next few years, Openreach is likely to continue to have a positive story to tell."
BT shares were 1.4% lower at 132.55 pence each in London on Friday morning.
By Eric Cunha, Alliance News news editor
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