Barclays remains bullish on BT Group (LON:BT.A), arguing that the company is well placed to grow dividends over the coming years. The comments are a boost for the former telecoms monopoly, which suffered an accounting scandal at its Italian division earlier this year, and has been under regulatory pressure to give more independence to its network division Openreach.
BT’s share price has slipped into the red in today’s session, having lost 0.42 percent to 315.60p as of 14:46 BST. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.69 percent lower at 7,490.59 points. The group’s shares have lost 14 percent of their value over the past year, as compared with a near five-percent gain in the Footsie.
Barclays reiterated its ‘overweight’ rating on BT, and price target of 450p on the shares today, noting that the former telecoms monopoly is well placed to pay a growing dividend over coming years with an improvement in its operational performance and continued cost-cutting measures supporting free cash flows.
“We are encouraged to see that BT’s return on capital for charge controlled services is now just 10.4% (was 13.1% in FY16), with a further 120 basis point drag likely in FY18 (which we already model) – which takes returns close to the expected cost of capital of ca9-10%,” the analysts explained, as quoted by Proactive Investors.
Barclays expects long-term revenue growth of about one percent, with its consumer division rising about one-two percent and the business segment ‘shrinking slightly’. For fiscal year 2018, the analysts see revenue broadly unchanged at £24 billion and underlying earnings (EBITDA) falling to £7.5 billion from £7.6 billion in 2017, reflecting higher cash outflows on the back of an increase in specific items.