Sign up Australia
Proactive Investors - Run By Investors For Investors

BT to offset fibre investment costs with cut to pension liabilities, says Barclays

Barclays has repeated an 'overweight' rating and target price of 450p on BT
BT
Barclays expects BT to provide clarity on pensions and fibre by May 2018

BT Group plc’s (LON:BT.A) plan to reduce its pension liabilities should offset rising expenditure on fibre investment and will continue to support current dividend payments, according to analysts at Barclays.

Last month, the company revealed that it would seek approval to switch the rate used to calculate its pension increases for about 80,000 members from the retail price index (RPI) to the lower consumer price index (CPI) in a High Court hearing late this year.

READ: BT Group faces higher capital expenditure and loss of wholesale customers, says Citigroup

“Recent moves indicate in our view a potential reduction in liabilities, and possibly also deficit repair payments,” Barclays said.

The bank a sees an improving pensions picture with changes to mortality assumptions. It also believes that using asset-backed partnerships could reduce the need for material near-term pension deficit repair payments.

On the BT’s plans to invest in fibre, Barclays has forecast capital expenditure will rise by 6%, or £200mln, in fiscal year 2019 and by 9%, or £300mln, in 2020.

“Offsetting this increase, we model higher wholesale fibre ARPU (average revenue per user) in later years. From a FCF (free cash flow) perspective this results in a 6% reduction in FY19E (fiscal year 2019 estimate).”

READ: Morgan Stanley thinks “dividend sustainability appears the main risk” currently for BT Group

Barclays expects BT to provide clarity on pensions and fibre by May 2018 when it publishes its full year results.

BT’s second quarter results in November this year are forecast to show a 5% decline in under lying earnings (EBITDA) as the group invests in the business and as regulatory headwinds and challenges at the  Global Services division persist, Barclays said.

Barclays repeated an ‘overweight’ rating and target price of 450p, saying it believes improving operational performance and continued cost-cutting can improve free cash flow generation at BT. 





Register here to be notified of future BT.A Company articles
View full BT.A profile View Profile

BT Group plc Timeline

Article
February 02 2016
Newswire
January 15 2016

Related Articles

picture of fibre optic cables
February 04 2017
The new syndicated debt facility provides increased scale and has a more flexible structure
1504096349_shutterstock_420468130.jpg
August 30 2017
It also confirmed it expects growth for the full-year to be in line with market expectations

© Proactive Investors 2017

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use