Broker snap: BarCap dials into telecoms

28th Oct 2009 12:36

Barclays Capital has initiated coverage of the European telecoms sector with generally positive views of three of the UK's big players.The broker has a price target of 169p for BT , where it sees a chance of rising dividends once the company's cost cutting programme starts delivering. 'We are mindful of the material pension deficit with the results of the triennial review due shortly, but see material valuation upside potential should BT execute the [cost cutting] plan,' Barclays capital (BarCap) said.Mobile phone giant Vodafone is 'clearly inexpensive' in BarCap's view. Using its discounted cash flow model, the broker values Vodafone's shares at 168p.'We do not see much room for positive cash flow surprises in the near term, owing principally to there not being a material Verizon Wireless dividend near term, numerous upcoming wireless spectrum auctions (Europe and Emerging Market), a number of potential tax issues (Europe and India), the presence of put options (India), and that near-term earnings may remain under pressure despite cost-cutting initiatives,' the broker added.BarCap also likes the look of Cable & Wireless (C&W), which it thinks may look to release value to shareholders by reviving its demerger plans. 'We believe C&W offers investors attractive upside potential with positive gearing to an emerging market recovery, exposure to an increasingly benign UK corporate market, and attractive upside in a demerger scenario.'BarCap has a price target of 175p for C&W.