BT Group PLC (LON:BT.A) has faced more promotional competition in recent weeks, according to UBS research, but with competitors Vodafone (LON:VOD) and Three following the market leader with a planned price hike from early next year all the companies could gain.
Analysts at the Swiss bank raised their earnings and cash flow forecasts as a direct result of Vodafone and Three following suit with their recent hikes, which combined with the re-rating of the sector in recent weeks results in BT’s share price target being lifted to 116p from 106p.
“In our view the key drivers for the stock from here are the valuation of Openreach and the clarification of the pension deficit,” UBS analyst Polo Tang said in a note to clients on Tuesday.
There is “a wide spread of outcomes” on the value of Openreach, Tang said, until there is visibility on the levels of fibre-to-the-home take-up and average revenue premium, together with clarity on whether Virgin Media will, or will not, expand its footprint by 7mln homes.
Recent promotional activity picked up by UBS’s ‘evidence labs’ research has included BT starting to offer three months of free broadband with no upfront fees, reducing the price of its Superfast 1 broadband by £1 per month, making its effective pricing £2-5 cheaper per month than prices in October.
Looking at the competition, TalkTalk is offering three-month free broadband but has also extended contract lengths to 24 months from 18 and added a £4.95pm one-off fee – with the promotion ending at the start of December; Vodafone has trimmed pricing for its Superfast 2 product and Gigafast products by £2-4 per month and keeping its three and six-months free offers; Virgin Media has increased promotional pricing for its Oomph converged bundles by £2 a month but is offering 40GB of mobile data versus 5GB previously.
Tang, who kept his 'neutral' rating on BT, said he sees the main market share winner in the UK as Vodafone, where recent results showed service revenues recovering faster than expected.