Barclays Adjusts Ratings on European Telecom Stocks

Barclays (LON:BARC) analysts made rating adjustments on several European telecom stocks on Tuesday, including BT Group (LON:BT), Telecom Italia (BIT:TLIT), and KPN (AS:KPN).

BT Group

The investment bank cut BT’s rating from Overweight to Equal Weight with a new price target of 190 pence, down from 215 pence. Analysts, led by Mathieu Robilliard, noted:

> "We believe that BT will face increasing revenue headwinds in the next 12 months, with extended pressure from AltNets."

They expect Openreach's broadband line loss to remain negatively impacted in FY26e, suggesting that BT is unlikely to grow revenues in that year, contrary to most EU incumbents.

As a result of this news, BT shares fell 1.5% in London trading.

Telecom Italia

Conversely, Telecom Italia's ordinary shares were upgraded from Equal Weight to Overweight, with a price target set at €0.32. Barclays expressed optimism about TIM's reduced financial risk, positive free cash flow, and potential for growth in revenue and EBITDA, especially in the business-to-business sector, along with cost-cutting measures.

Deutsche Telecom

Deutsche Telecom (BCBA:TECO2m) (DTE) was noted as a "core Overweight" name. Analysts are confident in the company's growth prospects:

> "With strong US growth and steady German trends, we see DTE continuing to deliver best-in-class growth among large caps, enabling growing cash returns."

They predict DTE’s return on capital employed (ROCE) will surpass the weighted average cost of capital by the end of 2024 and continue growing into 2025.

KPN

Meanwhile, KPN was downgraded from Overweight to Equal Weight, maintaining its price target at €4.2. Barclays believes that while KPN’s outlook for 2025 remains stable, there is limited potential for rating upgrades and no prospects for mergers or acquisitions, implying more attractive investment opportunities elsewhere in the sector.

Conclusion

Barclays posits that investing in high-quality and momentum stocks is typically the best strategy for EU telecom stocks. They believe this theme will persist into 2025, but suggest that exposure to recovery names through potential consolidation also makes sense.