Credit Suisse reiterates outperform on BT Group

Given that Sky had ruled out building a UK fibre network and TalkTalk simply did not have enough balance sheet muscle, that increasingly left BT looking as the only realistic option for Ofcom if it wanted to meet its 40% Fibre-to-the-Premise (FttP) ambitions, analyst Paul Sidney said in a research note sent to clients on 8 June.

That would translate into the regulator keeping in place sufficient incentives for BT to build-out FttP on the scale which was needed.

"This is a more positive scenario than is currently priced into BT shares."

To that, one also had to add recent price increases and a more positive Champions League impact from fiscal year 2019.

Shares in BT were offering a free cash flow yield of 6.5% versus 6.9% for the wider European Telecom sector, despite the company´s higher rate of growth in free cash flow, the analyst added.

As a result, Sidney said he was raising his forecasts for the company´s sales and operating profits for the years between 2017 and 2019, although he kept his target price at 510p.

In terms of potential upcoming share price catalysts, the analyst flagged the telecommunications outfit´s first quarter numbers on 28 July, the first draft of Ofcom´s WLA in Autumn 2016 and the next Champions League rights auction in the final quarter of 2016.

However, BT had been able to turnaround its UK wireline business over the past few years thanks to line growth (population/housing growth) rice increases and migration towards more expensive higher-speed fibre lines, he pointed out.

Hence, "any material negative impact on the UK economy caused by the UK leaving the EU could see these trends (in price increases and migration towards more expensive higher-speed fibre lines) slow or reverse."