BT GROUP (-) : FT reports Vodafone looking to acquire TalkTalk’s consumer unit; mixed read-across for BT

研报英文原文证据摘录

BT GROUP (-) : FT reports Vodafone looking to acquire TalkTalk’s consumer unit; mixed read-across for BT

Refinitiv

Investment case, valuation and risks

BT Group (Underperform, Target Price 190p)

Investment case

Our STAMP 2024 work suggests that the UK remains one of the most difficult markets

in Europe with the most dissatisfied customers and the highest sensitivity to price hikes.

Our forecasts are below consensus in Openreach where we expect a combination of

weak housing market (low household formation) and fibre challenger overbuild could

lead to higher line loss. A loss of TalkTalk to another player is also a risk. In Consumer

we see downside risk to estimates as price hikes moderate to more normal levels but

consensus assumes that most of these lower prices hikes kept (which did not happen

in recent rounds of hikes). We also see downside risks to consensus from social tariffs.

Business remains a difficult segment for BT.

Valuation methodology

We value BT using a DCF with a ~8% WACC and a -0.5% terminal growth rate.

Risks

To the upside:

We believe a new CEO might seek to cut costs more aggressively (and will not cut the

dividend near term) and could eventually revisit the portfolio structure of BT. A sale of a

large stake in Openreach at a >GBP20bn valuation. BT could find a willing buyer for its

former Global Services division now that it has announced an exit from its ex-UK assets.

To the downside:

BT's biggest shareholder is under financial pressure and might exit. Change in top

management could lead to uncertainty and some pressure. B2B remains difficult for BT.

Line loss could prove worse and ARPU trends worse in B2B. Accelerated overbuild, or

accelerating fixed voice usage decline would also be a risk. BT also faces some litigation

risk