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Investment bank backs the BT waiting game

Don’t expect BT to give too much away over the next couple of months, but investment bank Jefferies thinks there is enough there to make the telco a good bet.

The arrival of new BT CEO Philip Jansen has sparked the prospect of the telcos revival, at least from a share price perspective, though Jefferies believes cards will be held very close to the chest for the moment. Don’t expect too much insight on future strategies over the near-future, but the foundations seem steady enough to put BT in a solid position.

The last few years have not made for comfortable reading for many BT investors. In November 2015, share price stood at £4.99. This was not a historical high, but it was a peak in recent memory. Since that point, share price has declined 56% after gains from EE remained elusive, the Openreach position was challenged and a disastrous entry into the content game. Under former-CEO Gavin Patterson, BT entered a slump.

That said, in January BT reported positive results, suggesting the restructuring process implemented over the last 12 months was setting the foundations for recovery. Jansen was entering a business which was in a reasonable position.

“BT welcomes its new CEO with foundations to build on, not a slate to wipe clean,” the Jefferies investor note states.

However, with Jansen’s first earnings call just weeks away, don’t expect too much insight on BT’s future strategy. With Ofcom’s Access Review still yet to see the light of day, it would be “illogical” for BT to make too much of a commitment in the near future.

Depending on the outcome of this review, there might be room for Openreach to consider premiums on FTTP, there might be demands to increase CAPEX, there might be a need to cut Dividend Per Share (DPS). There are too many maybe’s floating around the regulatory uncertainty created by government ambitions to fibre-up 15 million UK homes by 2025.

While there is a suggestion DPS growth might freeze or reverse, this could allow BT to redirect funds towards the CAPEX column at Openreach. This could assist the telco in creating a friendlier relationship with Ofcom, an outcome which would be beneficial for everyone involved.

Jefferies feels there are too many unknowns for the telco to make any concrete commitments moving forward, but in encouraging customers to Buy BT, there is seemingly a lot of confidence.

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