‘Miserably low’ enthusiasm for BT produces contrarian signals

Investors have ‘overreacted’ to the troubles faced by BT and its plunging share price in 2017, meaning it has become an attractive play for contrarians, according to Ryan Paterson, research analyst at Thesis Asset Management.

Earlier this year, BT announced that its Italian unit had overstated prior earnings, while trading declined in the UK public sector and international corporate markets.

Shares sank by nearly 19% following these announcements, while year to date the stock is down 9.38%, something Paterson believes may not be fully deserved.

“We think this is an overreaction given the Italian unit only contributes roughly 1% of Group earnings and whilst the UK public sector and international corporate markets make up more, it’s still quite small in the context of the Group.

“BT shares were already depressed ahead of this announcement given the widely known headwinds of Ofcom’s push for greater independence of Openreach, the regulatory review of the wholesale local access market and its next triennial pension valuation on the horizon.”

“The announced price rises for its broadband services and television customers having to pay for BT Sport should alleviate some softness.”

Paterson notes that while investor enthusiasm has fallen to miserably low levels, any positive surprises will magnify gains to the upside. In particular, Paterson believes the consumer and mobile franchise remain strong and expects further progress going forward.

“EE continues to benefit from strong sales, reflecting its best-in-class offering for speed and coverage. We also took comfort from management’s decision to reaffirm its dividend commitment of at least a 10% YoY increase,” Paterson said.