4th Jan 2023 11:30
(Alliance News) - All eyes will be on whether BT Group PLC presses on with plans for price increases, amid red-hot inflation, analysts at Berenberg said on Wednesday.
The London-based telecommunications company is expected by mid-January to announce a 14% price increase which will take effect in April.
This would represent a pricing mechanism of the consumer price index plus 3.9%. The Office for National Statistics will release December's CPI data on January 18.
Berenberg analysts Carl Murdock-Smith, Usman Ghazi and Saim Seed expect UK inflation to ebb from November's 10.7%.
Berenberg believes the price hike would initially reflect positively in BT's share price and lead to 2023/24 consensus upgrades in consumer earnings before interest, tax, depreciation and amortisation of around 0.4% from a year earlier.
However, it risks a longer-term political backlash, alongside Berenberg's concerns of the pricing mechanism's medium-term sustainability.
"[This is] particularly given the Labour Party’s three-point telecoms plan – the party is currently well ahead in the polls," said Berenberg.
It also said it believes BT's third quarter results, which will be announced on February 2, will "leave a lot for BT to do in [its fourth quarter] to achieve full-year guidance".
BT's financial year ends on March 31.
The German bank predicted BT will have to grow fourth quarter Ebitda by 5.5% to hit its financial 2023 target of GBP7.9 billion.
This is despite an additional headwind of an early GBP1,500 employee pay increase from January and existing concerns from its first and second quarter results, particularly over the sustainability of BT's consumer average revenue per user growth, its broadband base decline being the "new normal" and whether its annual guidance was realistic.
As a result, it reduced its price target for BT to 160.00 pence per share from 190.00p, due to a combination of lower cash flows and increased cost of capital.
Shares in BT were up 2.7% to 117.85p each in London on Wednesday morning.
Berenberg still believes BT will reach its target annual guidance, "albeit possibly the Ebitda underpin in BT's bonus scorecard being enacted, which we would view as low quality".
By Greg Rosenvinge, Alliance News reporter
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