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FTSE recovers after turmoil but BT falls on competition fears

Discussion in 'Market News' started by Lily, Feb 12, 2016.

  1. Lily

    Lily Forum Member

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    UBS issues sell note on telecoms group as rivals boost services

    As markets attempt a recovery after the week’s turmoil, BT is missing out on the gains.

    The telecoms company is down 7.9p or nearly 2% at 442.55p after UBS cut their recommendation to sell amid concerns about growing competition. UBS said:

    After a benign period, we see a risk of increasing competition that could lead to longer- term EBITDA for BT being £1.25bn per annum (-15%) lower on a downside scenario.

    On mobile, Sky is set to launch a mobile service later this year and, depending on the remedies from the Hutchison/O2 UK merger, there could also be a new entrant such as Iliad. A potential Vodafone/Liberty Global merger would lead to lost mobile virtual network operator/BT Wholesale revenues initially, but we think the longer-term impact from Virgin Media’s footprint expansion (Project Lightning) has been underestimated.

    BT is well-run and has created significant shareholder value. But at this point we see the risk/reward profile as unattractive and think the risks from increasing competition have been underestimated. We cut our rating to sell from neutral. Our base-case price target is 430p – our estimates are broadly in line with consensus and assume a continuation of the current benign competitive environment. However, should competition intensify we see downside to 305p. We see scope for BT to realise additional cost savings, but the upside scenario is only 490p. We acknowledge the potential for BT to be a beneficiary of cross-border M&A, but this is likely to be in the longer term.

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