Credit Suisse reiterated its ‘outperform’ recommendation for shares of BT Group, labelling the stock an ‘inflection story’ and arguing that it was set to benefit from several tailwinds – including rising inflation and government bond yields.
According to Jakob Bluestone, Ben Lyons, and Evgeny Kudinov, the telecommunications group was set to extend the reach of its fibre-to-the-premises offering to 16m premises by financial year 2025.
In turn, the shift towards fibre would boost its average revenues per user, as at rivals Deutsche Telekom and KPN, they said.
A “strong” recovery from the hit taken from Covid-19 was also in the works, they said, starting from the first quarter of the 2022 financial year.
The analysts were expecting earnings before interest, taxes, depreciation and amortisation would grow by 2.0% and 2.8% in financial years 2022 and 2023, respectively.
BT was “well positioned” as regards rising inflation and bond yields, as it moved its consumer contracts to CPI+3.9%.
Rising inflation would also cut its pension deficit, to the tune of £500m for each 0.7% increase in inflation, as per the latest actuarial review.
The company was also set to benefit from the Chancellor’s new deductions for investment, which was the chief reason why the analysts bumped up their target price from 190.0p per share to 200.0p.
On valuation, they estimated the shares were trading on an enterprise value-to-EBITDA multiple of 4.7 times for the 2022 financial year when pensions were included, versus peers on 6.1.
The estimated adjusted free cash flow yield on offer on the other hand was 5.6%, against its rivals on 7.3%.