Exane downgrades BT Group, recommends dividend cut

At the same time, the broker cut its target price by 15% to 260p.

Exane said BT's underlying business was "teetering on the edge" and that it had identified more than a dozen factors - excluding regulations - which would drag on its operating profits and free cash flows more than markets were anticipating.

"In our view the market is mispricing BT as they transition from growth to decline," Exane said.

As far as the regulatory pressures bearing down on the company were concerned, Exane said that with Ofcom breathing down its neck BT faced the prospect of upwards pressures on its capital outlays just as consumer spending was plateauing.

The dividend also needed to be rebased by more than the company had hinted thus far.

"On our new estimates they face a £800m cash shortfall over 3 years to fund just 2% growth," analysts Sam McHugh, San Dhillon, Kohulan Paramaguru and Alexandre Roncier said.

"This promise leaves them on the back foot; a constraint to competitive flexibility and ability to bid on crucial spectrum/content auctions."

In their opinion, a 30% cut would do the trick, lowering the pay-out closer to its historic levels.

An explicit long term capex plan would also help to rebase expectations and ease regulatory pressure, the broker argued.