Morgan Stanley sees around a 30-percent downside risk to BT Group’s (LON:BT.A) dividend, the analysts have said. The comments came as the broker trimmed its valuation on the former telecoms monopoly.
BT’s share price has been steady in today’s session, having added 0.25 percent to 280.05p as of 13:34 BST, slightly outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.03 percent lower at 7,465.96 points. The group’s shares have lost more than 28 percent of their value over the past year, and are down by some 23 percent in the year-to-date.
Morgan Stanley reiterated its ‘equal weight’ rating on BT today, trimming its price target on the stock from 350p to 320p. Proactive Investors quoted the analysts as explaining that “dividend sustainability appears the main risk” for the company, noting that the conditions were similar to those in 2009 when the telecoms giant cut its payout to shareholders. At the time, BT slashed its dividend by over 60 percent amid management changes, a profit warning in Global Services, and rising pension payments.
“The situation in 2017 looks similar with (1) a new Chairman and CFO appointed; (2) a profit warning following accounting fraud in Italy; (3) an upcoming triennial pension review where we forecast the deficit has ballooned to £13bn from £7bn previously,” Morgan Stanley pointed out, adding that the FTSE 100 group was further facing “an additional cash call from fibre investments, which we believe cannot be absorbed into the existing capex budget, as was the case for their VDSL (fibre to the cabinet) upgrade plan in 2009”.
The comments come after Moody’s warned last week that BT faced a £2-billion cash bill over the next two years, potentially threatening the telco’s payout to shareholders.