JP Morgan has pointed to a growing M&A 'frenzy’ in telecoms that could see both BT Group PLC (LSE:BT.A) and Vodafone Group PLC (LSE:VOD) taken out.
In a 120-page note, it presents five themes that may pique the interest of private equity, which is likely to bankroll acquisition activity.
KKR has already taken a stab at Telecom Italia, while the PE industry is said to be sitting on an undeployed cash mountain of US$1.5trn.
JPM’s research suggests a benign macro-economic climate, allied to an improving regulatory backdrop should help seed the ground for deals.
It also pointed out that PE has the cash to fund accelerated investment in fibre.
Why does this matter? At the moment certain telco stocks are seen as barely investable while they are ploughing billions of pounds into new super-fast infrastructure. However, once the spending is complete the likes of BT become prodigious cash generators.
JPM expects PE has spotted an opportunity the market is just too short-sighted to see.
The Wall Street bank also points out that top-line growth (revenues going up, in other words) is now also an industry theme as is the diversification of certain telcos into value-enhancing digital services.
Looking at opportunities, JPM’s UK top picks are BT and Vodafone. It also likes KPN, Deutsche Telekom, Cellnex and O2D and Truecaller.
In late-morning trade, BT shares were 4% higher, while Vodafone was up 2.6%.