BT share price: Berenberg trims rating amid dividend cut fears

Berenberg Bank has lowered its rating on BT Group (LON:BT.A) amid worries that the telco’s dividend could be cut, Proactive Investors reports. The comments came after the former telecoms monopoly updated investors on its full-year performance at the end of last month.

BT’s share price retreated in the previous session following the analyst comments, giving up 3.25 percent to 220.00p. The stock underperformed the broader UK market, with the benchmark FTSE 100 index giving up  0.45 percent to close at 7,151.12. The telco’s shares have given up just under 10 percent of their value over the past year, as compared with about a two-percent drop in the Footsie.

Berenberg trims rating

Berenberg Bank lowered its stance on BT to ‘hold’ yesterday, further trimming its valuation on the shares from 275p to 260p. Proactive Investors quoted the broker as saying that it reckons the group’s new boss Philip Jansen should favour investment over shareholder returns if he is serious about returning the former telecoms monopoly to growth. The analysts explained that the telco’s free cash flow is £2.5 billion, which is £1 billion more than the cost of paying out its dividend.

“From this £1 billion, BT has to support the pension deficit, buy spectrum, buy back employee share options to prevent dilution, and fund restructuring,” said analysts in a note to clients, adding that if the new CEO “wants to increase investment to drive a return to growth, this would shrink the £1 billion of headroom for such costs, putting the dividend under pressure”.

Other analysts on telco

Jefferies, which rates BT as a ‘buy,’ lifted its price target on the shares from 265p to 340p earlier this month, while Credit Suisse reaffirmed the company as ‘neutral,’ without specifying a valuation on the shares. According to MarketBeat, the former telecoms monopoly currently has a consensus ‘hold’ rating and an average price target of 275.42p.

As of 08:30 GMT, Wednesday, 27 February, BT Group plc share price is 220.00p.