The German bank, which kept its ‘hold’ rating on the shares and 220p price target, said the 12 December general election on is a key event.
With BT’s gross pension liabilities three times the size of its market valuation, Berenberg said an election result that delivered a Conservative majority for Boris Johnson in parliament “would cause real gilt yields to increase, reducing BT’s pension deficit”.
Following Labour’s pledge to renationalise BT’s Openreach arm, a Tory majority would also remove this risk.
As regards regulation, Berenberg’s analysts noted high levels of anticipation among investors for Ofcom’s December consultation on the fixed telecoms market and suggested this may not produce “easy conclusions”.
“Firstly, we already know Ofcom’s broad strategic direction from its March 2019 consultation on promoting competition and investment in fibre,” the analysts said, with the consultation “very long and very detail-focused” but, ultimately not the final step in forming the regulatory framework for the five years from April 2021.
“We view December’s consultation as important for BT in helping it to address the detail of its investment case to accelerate ‘full fibre’ rollout. However, we do not anticipate it containing easy conclusions for the investment community.”
The analysts also cautioned that other City analysts are likely to be “incorrect” in hoping that BT Consumer EBITDA will return to growth in 2020/21, after a 5% decline in 2019/20.
Overall, they see scope for BT to outperform in coming weeks, assuming the Conservative Party wins a majority, but longer term are comfortable with a neutral stance.
“BT is cheap but faces challenges in returning to top-line growth given a deteriorating Consumer market, while pressure to invest more in full fibre is likely to lead to a dividend cut.”