Broker snap: BT 'fairly valued at best'

18th Nov 2009 12:00

Broker Charles Stanley sees nothing much on the horizon to drive BT's share price over the medium term and has consequently switched its recommendation on the telecoms giant's shares from 'buy' to 'hold'.Charles Stanley analyst Tom Gidley-Kitchin concedes BT's recent results were ahead at the earnings level, though there 'was perhaps some disappointment' at indications that the full year dividend would only be raised by 5%.'The significance is that the company needs to allocate £525m to the pension fund top-up and £533m to dividends assuming DPS [dividend per share] of 6.88p, amounting to £1,058m. Although BT has adequate bank facilities, there had been concerns that the previously indicated "well over £1bn" did not leave a lot of headroom for the dividend, or at least for significant dividend growth,' explains Gidley-Kitchin. 'FCF [free cash flow] of at least £1.6bn provides plenty of headroom, as well as indicating a significant operational improvement - even if closer examination showed this to benefit from a £236m one-off tax receipt,' Gidley-Kitchin continued. The broker has medium terms concerns over the assumptions underlying BT's pension fund deficit calculation, doubts over growth potential and also fears over the threat of migration of land-line customers to exclusive use of mobile services.'After a strong performance in recent months we think the shares are fairly valued at best,' the broker concludes.