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29 Mar 2021 | 15:24

Morgan Stanley upgrades BT to 'overweight', says overhangs are easing

(Sharecast News) - Morgan Stanley upgraded its stance on shares of telecoms company BT Group on Monday to 'overweight' from 'equalweight' and lifted the price target to 200p from 125p as it argued that overhangs are easing. The bank said that after several years of headwinds - dividend cuts, uncertain regulation, higher capex, Covid-19 - the outlook for BT now looks more promising.

Most recently, there has been encouraging news on Openreach around Ofcom's regulation of fibre, it said.

"Although more details could have been more supportive, particularly around returns, BT has now confirmed its £12bn investment to build FTTP to 20 million premises by the mid- to late-2020s. This drives greater certainty around capex and over time we expect the topic of fibre regulation, which has been a headwind for years, to gradually fade away."

MS also pointed to "unexpected" government support for fibre investments and said the new super-deduction tax scheme could mean that BT pays very little tax in the next few years.

"BT is an incumbent operator with a growing fibre business and a leading mobile unit". MS said. "Yet the stock's valuation is cheap after multiple years of downgrades and de-rating."

Fibre regulation and pension have been headwinds, but now there is greater visibility from Ofcom and rising rates are helpful, said MS. "Price rises in consumer are also supportive, whilst high B2B exposure remains the main risk."

At 1555 BST, the shares were up 2.3% at 151.45p.
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