- BT set to introduce price increases in mid-January
- Third-quarter results are due on 2 February
- Berenberg warns company could be left with ‘lot to do’ in Q4 to meet guidance
Telecoms outfit BT (BT.A) could have an interesting start to 2023 as it looks to deliver on guidance and push through price increases due for mid-January.
If the company can get its typical CPI (consumer price index) plus 3.9% price increase through then it could improve sentiment towards a stock which fell away badly in the second half of 2022 on concerns over the mounting costs facing the group. Despite a 2.1% advance this morning to 117.5p the shares aren't too far above 52-week lows of around 110p.
If BT does increase prices as planned it would add up to a 14% increase and Berenberg analysts Carl Murdock-Smith, Usman Ghazi and Saim Saeed note it ‘may risk a longer-term political backlash’ but could prompt earnings upgrades for the Consumer division.
BT MAY HAVE A ‘LOT TO DO’ TO MEET GUIDANCE
Reducing their price target to 160p from 190p due to lower cash flows and an increased cost of capital (largely thanks to higher interest rates), they warn third quarter results on 2 February 'will leave a lot for BT to do in Q4 to achieve full-year guidance.
BT is forecast by Berenberg to end 2023 with net debt of more than £19 billion and this could put pressure on the dividend as we discuss in this article.
The Berenberg analysts add: ‘Revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) growth trends in Openreach, Enterprise and Global are likely to prove fairly consistent with Q2 (in Q3). Meanwhile, the Consumer division’s revenue growth is likely to continue to slow, as more customers come to the end of contracts and spin down to cheaper tariffs.’
They also explain that any January price boost could be a case of short-term gain but long-term pain: ‘We worry about the
political acceptability and medium-term sustainability of BT’s pricing mechanism, particularly given the Labour Party’s three-point telecoms plan - the party is currently well ahead in the polls’.
Labour's proposals would stop regulated wholesale prices from rising in line with CPI, introduce a social tariff for low-income families and strengthen consumer protections.
