BT Group shares ripe for a re-rating, says JPMorgan

Shares of BT Group appear heavily undervalued and "ripe for a major re-rating", JPMorgan Cazenove said in a note on Thursday.

The bank, which rates the stock at ‘overweight’ with a 290p price target, said BT’s equity story remains intensely debated.

"Despite having achieved a structural growth inflection, its shares continue to yoyo aggressively between £1-2/share, and are currently back at their lows," JPM noted.

"Such volatility reflects uncertainties related to: (1) The company’s growth prospects (nascent pricing power); (2) The competitive landscape (fibre altnet threat); and (3) The resulting post-fibre FCF outlook."

Against this backdrop, JPM argued that BT’s new chief executive should consider providing mid-term guidance.

JPM noted that it will be several years before we have clear line-of-sight on BT’s fibre returns and said mid-term targets would bridge the duration gap. In addition, it pointed out that most telcos (70%) now provide mid-term outlooks.

"BT is a rare exception - unhelpful for such a controversial stock, and a factor behind its wide consensus forecast range," it said.

JPM noted that BT has guided for Mar-28E capex and opex to fall £1.5bn as fibre spend rolls off. It said investors worry these savings will be "gross" not "net".

The bank also said that with visibility poor, BT’s shares often "overreact" to results and news flow.