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Investing.com -- BT (LON:BT) shares slipped after BofA Securities cut its rating on the company to “neutral” from “buy,” arguing that the stock has reached full valuation following a sharp rally this year.
Analysts said BT’s shares have climbed about 45% year to date, outperforming Dutch rival KPN by around 30%, but this performance has come despite negative earnings revisions.
BofA left its price objective unchanged at 210p, saying the rally leaves little upside from here.
The brokerage contrasted BT with KPN, which it upgraded to “buy” and raised its price objective to €4.70 from €4.30.
Both companies are nearing the end of their fiber rollouts, with capital spending set to decline and free cash flow rising thereafter.
But BofA said BT’s near-term ability to return cash is constrained by pension obligations and the need to reduce debt, while KPN’s lower leverage and more flexible balance sheet support higher and earlier shareholder returns.
On valuation, BT initially appears cheaper, trading on an EV/EBITDA multiple of 5.3x for 2025 compared with 8.3x for KPN. Its reported free cash flow yields also screen stronger at 5.1% in 2025 versus 4.9% for KPN.
But BofA said the comparison changes once adjustments are made for BT’s pension commitments and for normalized cash tax, which the company has been shielded from under the UK’s bonus depreciation regime.
Adjusted for these factors, BT’s free cash flow yields fall to 1.8% in 2025, below KPN’s 4.9%.
BT is also expected to deliver less attractive cash returns to shareholders. Under Bank of America’s forecasts, BT’s dividend yield will rise from 3.9% in 2026 to 5.6% in 2031.
But its cumulative cash returns amount to 51% of its 2025 market capitalization by 2031, back-end loaded as pension payments ease.
KPN, by contrast, is expected to return 48% of its market capitalization by 2030, with a smoother profile and higher near-term returns.
Its dividend yield is projected to rise from 4.3% in 2025 to 7.3% in 2030, with additional support from buybacks averaging 1.6%–3.1% a year.
Operationally, BT faces intensifying pressure in its domestic market. Bank of America pointed to record fixed-line losses at BT, projected at up to 900,000 lines this fiscal year, alongside rising competition in mobile from low-cost challengers such as Revolut.
UK broadband pricing has shown recent declines, while prices in the Netherlands remain stable or rising. BT’s consumer and business revenue growth is forecast to remain subdued, with EBITDA growth of less than 2% over the medium term.
KPN, in contrast, is growing revenues and EBITDA at around 3% annually, with further upside expected from copper decommissioning and fiber efficiencies.