Analysts trim BT share price target

BT’s share price has been under pressure in the second half of 2022 as strike action and higher costs weigh on sentiment. Increasing its cost-cutting target to £3bn by 2025 has done little to reassure investors. An end to strikes hasn’t lifted the stock either, and analysts have trimmed their target prices this month.

BT [BT-A.L] awarded the majority of its workforce a £1,500 pay rise at the end of November. This brought to an end a protracted dispute that had seen staff vote for strike action for the first time in 35 years. All staff earning £50,000 or less will get a permanent pay rise. BT said that this would benefit 85% of its workers.

Despite an end to the prospect of more industrial action, BT’s share price has dropped 6.5% since 1 December, closing Friday at 113.55p. Heading into 2023, the stock faces a mountain of headwinds, including analysts trimming price targets.

BT share price under pressure

Several days of strike action this year at BT has disrupted services for repairs, new phone and internet installations, and contact with support staff. Yet strike action isn’t the only factor weighing on BT’s share price.

Also weighing on BT’s stock are inflationary pressures, including the impact of higher energy costs on business. In half-year results published 3 November, pre-tax profits fell 18% to £831m in the six months to 30 September. Half-year revenue rose 1% to £10.4bn due to inflation-rated price increases for Consumer and Openreach customers, which was offset by lower kit sales and the disposal of BT Sports.

The telecom provider also upped its cost saving target for full year 2025 by £500m to £3bn in order to maintain cash flow for its network investment.

“Given the current high inflationary environment, including significantly increased energy prices, we need to take additional action on our costs to maintain the cash flow needed to support our network investments,” BT Chief Executive Philip Jansen said.

Finding £3bn worth of savings is no easy task. Chief Executive Philip Jansen said that “inevitably” some roles would be cut and that customers could face price hikes. Other mooted cost-cutting measures include automating back-end processes and moving more customers onto 5G broadband networks, which are cheaper to run than legacy networks.

The increased cost savings target saw BT’s share price endure one of its worst days of trading for the year, with the stock tumbling almost 9% on the day. That caps a miserable performance for the second half of 2022. Since 12 July, BT’s stock has collapsed over 42% and is now trading around July 2020 levels.

Analysts set 130p price target on BT stock

UBS analyst Polo Tang lowered his price target on BT’s share price from 174p to 130p, in a 7 December note. Tang said that increased competition and limited scope for above inflation price increases would result in a mixed 2023 for the FTSE 100 telecom provider.

“While we are cautious on fundamentals, concerns may be largely priced in at current levels. We remain neutral but cut our price target to 130p from 174p to reflect a de-rating of the sector/more conservative longer-term assumptions,” wrote Tang.

UBS’s price cut follows a similar trimming from Citigroup. In a 2 December note, analysts at Citi cut their target to 130p from 185p and reiterated their ‘neutral’ rating. The cut reflects both a change in the model Citi analysts use to assess the company, and the deconsolidation of BT Sport and increased wage proposals.   

Another headwind are fresh reports that BT may need to stump up more cash to support its giant £47bn pension scheme following the chaos caused by the UK government’s September mini-budget.

Of the 17 analysts polled by Refiniv, BT has a 187p 12-month median price target. Hitting this would represent a 64.7% upside on Friday’s close. Whether this is realistic considering the pressures the company is facing remains to be seen. The next test for BT will come on 2 February 2023 when it reports third quarter results. For income seekers, BT’s stock carries a 6.84% forward dividend yield.