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UBS maintains Sell rating on BT Group shares amid litigation risks

EditorAhmed Abdulazez Abdulkadir
Published 12/05/2024, 12:53 PM
BT
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On Thursday, UBS reiterated its Sell rating and GBP1.15 price target on BT Group Plc. (LON:BT/A:LN) (NYSE:BT), citing potential litigation risks as a cause for concern. Currently trading at $1.58 with a P/E ratio of 7.44, InvestingPro analysis indicates the stock is fairly valued. The telecommunications company is currently involved in a class action lawsuit, which seeks damages of up to £1.3 billion for claims of historic overcharging on voice-only lines.

The Competition Appeals Tribunal (CAT) held a hearing in March 2024 regarding the case, with expectations for a ruling in the first quarter of 2025. A previous investigation by Ofcom, the UK's communications regulator, into BT's pricing practices has added to the uncertainty surrounding the company's potential liability. Despite these challenges, InvestingPro data shows BT maintains a GOOD overall Financial Health Score of 2.63, with particularly strong marks in profitability metrics.

According to UBS, the outcome of the lawsuit could significantly impact BT Group's market capitalization, with the sought damages equating to approximately 8.4% of its value. The firm suggests that the BT share price does not fully reflect the risk of the lawsuit, but acknowledges that a negative result could draw more attention to additional pending litigation.

Furthermore, BT faces another claim of approximately £1.1 billion, which represents about 7.1% of its market cap. This case involves customers who were allegedly overcharged after their combined handset/airtime contract expired but continued to pay the same amount despite having paid off their handset. This lawsuit, which targets all major network operators in the UK, is scheduled for its next hearing in March 2025.

The analyst from UBS highlights that the recent settlement by Mastercard (NYSE:MA) in one of the UK's first collective class action lawsuits could increase the focus on BT's ongoing legal challenges. As the telecommunications industry faces scrutiny, the financial implications for BT Group could become a focal point for investors and market observers.

In other recent news, BT Group Plc has experienced several significant developments.

The company received an upgrade from Redburn-Atlantic, shifting its stock rating from Neutral to Buy. The new price target is set at GBP2.30, indicating a positive outlook for the company's future performance. The upgrade comes at a time when BT Group's main competitors are facing financial difficulties, while BT Group is expanding its fibre network, which is expected to work in its favor.

Redburn-Atlantic anticipates that BT Group will undergo a phase of improving its cash flow and earnings, complemented by significant cost reductions. Goldman Sachs has maintained its support for the company with a Conviction Buy rating and a target price of GBP2.90, despite potential competition from a new fiber broadband partnership between Sky and CityFibre.

Bharti Global's agreement to acquire a 24.5% stake in BT Group from Altice UK has been viewed positively by Citi. The acquisition is expected to alleviate immediate market concerns surrounding BT Group's ownership structure. Meanwhile, Citi has reaffirmed its 'Buy' rating on BT Group's stock, despite an anticipated short-term dip in EBITDA. However, a recovery in EBITDA trends is projected during the second half of the year, as BT Group benefits from its cost efficiency program.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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