Broker tips: BT Group, Frontier Developments

(Sharecast News) - Analysts at Berenberg lowered their target price on telecommunications giant BT Group from £1.90 to £1.60 on Wednesday, stating "all eyes" will be on pricing moves. Berenberg said that over the next few weeks, it thinks that investor focus will first centre on whether BT will go ahead with its plans in mid-January and announce a roughly 14% price increase for April.

"While executing its CPI+3.9% pricing mechanism may risk a longer-term political backlash, we believe that it would initially be taken positively for the share price and lead to 2023/24 consensus upgrades in Consumer EBITDA," said Berenberg.

The German bank also pointed out that BT then reports Q3 results on 2 February, which it believes will leave a lot for the group to do in Q4 to achieve full-year guidance.

"We forecast 0.4% EBITDA growth yoy (H1: +2% on a BT Sport joint venture pro-forma basis). To then hit its guided £7.9bn EBITDA for 2022/23, BT will have to grow Q4 EBITDA by +5.5%, this despite the additional headwind of BT putting through an early £1,500 pay increase for employees from January 2023," said Berenberg, which reiterated its 'hold' rating on the stock.

"We believe the guidance will be achieved, albeit possibly by the 'EBITDA underpin' in BT's bonus scorecard being enacted, which we would view as low quality. Regardless, we expect investor doubts about BT's guidance to increase after Q3."

Analysts at ShoreCap upgraded their recommendation for shares of Frontier Developments from 'hold' to 'buy' on Wednesday, telling clients that they were anticipating record sales over the 2023 financial year and a step-change in profitability.

ShoreCap's new recommendation, it pointed out, follows a downdraft that had seen the shares drop from about 1,400.0p in November to "just" 960.0p.

To the bank, that marked a "notable" discount to their fair value estimate of 1,350.0p - which was unchanged - and to its historical metrics "despite a larger profile of titles and an arguably more sophisticated model".

ShoreCap also anticipates improving margins and cash generation across its forecasted period, which stretched out to FY2025.