BT share price: Analysts flag drop in telco’s pension deficit

BT Group’s (LON:BT.A) massive pension black hole is set to drop by billions of pounds, analysts have said. The comments come amid expectations for an upcoming rate hike by the Bank of England (BoE).

BT’s share price rose yesterday, adding 1.07 percent to close at 273.75p and outperforming the broader UK market, with the benchmark FTSE 100 index ending the session little changed. The group’s shares have lost more than 28 percent of their value over the past year, and are down by some 25 percent in the year-to-date.

Pension deficit drop on the cards

City A.M. reported yesterday that while previously consensus opinion had been that BT’s retirement deficit would swell from £8.7 billion to around £11 billion, a report by RBC Capital Markets had shown that the shortfall could halve to £4.4 billion. The analysts argue that with an increased chance that the BoE will hike interest rates, the former telecoms monopoly would be within its rights to increase its discount rate, or the critical reference rate linked to bond yields.

The comments are a boost for the former telecoms monopoly which is facing a number of challenges, including an accounting scandal at its Italian division and regulatory pressure to improve performance at its network division Openreach. Analysts had previously flagged concerns over the group’s dividend, partly on account of rising pension payments.

Rating update

RBC Capital Markets’ comments came as the analysts reiterated their ‘outperform’ stance on the former telecoms monopoly, valuing the shares at 410p. According to MarketBeat, BT currently has a consensus ‘hold’ rating and an average price target of 350.53p. The FTSE 100 group is scheduled to update investors on its recent performance on November 2. 

As of 08:05 BST, Tuesday, 24 October, BT Group plc share price is 274.26p.