Downgrades at BT have been the theme for the past five years, but this is now changing says the US broker.
The telecoms giant expects earnings underlying profits to rebound to £7.9bn ( EBITDA) by year-end March 2023, allowing cashflow to improve even with Openreach’s fibre upgrade.
Shares have rallied 50% on this prospect, but as it works through its network upgrade JPM sees Openreach’s earnings contribution rising by £1bn (85%) in the long-term.
This will feed into BT’s free cashflow, which the broker sees almost trebling to £3.3bn in 2031.
If BT can convince investors of the opportunity in fibre, the shares will get a rerating, believes JPM. though in the meantime there are plenty of other catalysts.
These include better than expected results; dealing with the pension overhang; lower Premier League football costs; and price rises.
”Given increasing private equity interest in Telco infrastructure, one option would be for BT to monetize a stake in Openreach (look through value), and collateralize a stake with the pension fund (lower future contributions).
JPM has a value of £22bn for Openreach and raised its share price target for BT to 230p from 170p.
Shares rose 2.5% to 154.5p.