Why one analyst is so bearish on BT

Oliver Smith
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BT’s shares have been cooling for the past month, falling around 10 per cent, and now broker Bernstein has downgraded BT to “market-perform” on fears it may overspend on upcoming Premier League auction.

“BT's ambition in TV is clear, what is not is how far they are willing to push Sky in the next round of EPL auctions (potentially less than 12 months away).”

The total cost of Premier League TV rights in the UK could grow some 60 per cent to over £5bn, based on the escalation seen during the last round of Champions League bidding, due to the increased competition.

The spiralling costs of sporting broadcast rights are now facing shareholder pushback for both BT and Sky. BT will have to continue to justify its huge investment and prove it has a direct benefit for its broadband business (BT Sport as a loss leader to grow its broadband customer base).

Competition increases as the triple play market doesn't grow as much as expected, and a more competitive response from Virgin Media emerges, who have recently been more focused on cost cutting.

BT has long stood on the sidelines of the so-called quad-play operators (who offer TV, broadband, fixed line and mobile) like Virgin Media and Talk Talk. But Bernstein says that even if BT made a full push into mobile that would only add around 20p to the company’s valuation – assuming little to no capex from BT was required.

Bernstein also lists fears that the regulatory regime for fibre could become less favourable for BT and its pension deficit could grow beyond expectations, as reasons for an unambitious target price of 385p.