BT shares slumped to the bottom of the FTSE 100 this morning after it received a scathing broker note about its investments.
German investment bank Berenberg dropped the telecom stock from a Buy to a Hold, stating that it had underestimated the pressures on the UK firm. Brokers also reduced its price target to 190p from 220p.
“In the near term, we previously thought that investor sentiment towards BT would improve in 2022/23 from a return to growth and achievement of its £7.9bn EBITDA target”, brokers wrote.
“We underestimated the pressures on BT’s business-facing divisions, and the Q1 results raised a multitude of questions about BT’s investment case.”
Berenberg added that there were concerns that by these issues were resolved, the UK would be heading towards the next general election, “at which point the pricing and Openreach debates will increasingly take over,” brokers said.
BT share price has tanked over 15 per cent in the year to date, following on from a steady decline over the past five years.
However, BT has managed to increase EPS by an average of 1.3 per cent per year, standing in contrast to market sentiment towards the stock.
Berenberg said the Patrick Drahi stake “creates optionality” for the FTSE 100 firm.
The billionaire Drahi became a 12.1 per cent shareholder in June 2021, before increasing his stake to 18 per cent in December 2021.
“While his motivations remain unclear, this creates the possibility of newsflow (or at least speculation) that could cause the share price to increase,” brokers said.
The acquisition of BT shares was cleared by the business secretary after a review under the National Security and Investments Act (NSIA) last month.