Berenberg upgrades BT to 'buy', shares rally

The bank noted that even after last week’s strength, BT remains the fourth worst-performing stock in the FTSE 100 in calendar H2.

However, since Berenberg downgraded it in May, there have been four positive developments in the investment case, relating to Patrick Drahi, the pension, capex and the strength of management’s tone on guidance.

Berenberg pointed out that since its downgrade of the stock to ‘hold’ in May, French billionaire and Altice owner Drahi became a 12.1% shareholder. In addition, the BT Pension Scheme published its annual report on 7 October, suggesting that the deficit had reduced to £4.6bn at June 2021.

BT said at its Q2 results last week that capex will now peak at around £4.8bn a year, which is less than the £5bn signalled in May. And finally, Berenberg said chief executive Philip Jansen’s tone strengthened at the second-quarter results with regards to 2022/23 guidance.

"Looking ahead, we believe a stock that in 2022/23 will grow revenue, EBITDA, adjusted EPS and normalised free cash (by 1%, 4%, 9% and 22% respectively) should not be trading on 9x price-to-earnings (calculated on the more punitive reported EPS basis)," Berenberg said, hence the upgrade.

At 1245 GMT, the shares were up 3.3% at 163.67p.